THE PALACE AT PORT IMPERIAL:
Financial Feasibility Analysis of
a Waterfront Condominium Development
in West New York, New Jersey
by
Doreen Dorothea Schmelz
Bachelor of Arts
Wellesley College, 1981
SUBMITTED TO THE DEPARTMENT OF URBAN STUDIES & PLANNING
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE
OF MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER 1986
O9
Doreen Dorothea Schmelz 1986
The author hereby grants to M.I.T.
permission to reproduce and to distribute publicly copies
of this thesis documant in whole or in part.
Signature of Author
__II
Doreen Dorothea Schidlz
Department of Urban Studies & Planning
August 15,
1986
Certified by
Lfnne B.
ag lyn
Assistant Professor of Planning
and Real Estate Development
Thesis Sppervisor
Accepted by
James McKellar
Chairman
Interdepartmental Degree Program
in Real Estate Development
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SEP o5 1986
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2
THE PALACE AT PORT IMPERIAL:
Financial Feasibility Analysis of
a Waterfront Condominium Development
in West New York, New Jersey
by
Doreen Dorothea Schmelz
Submitted to the Department of Urban Studies & Planning
on August 15, 1986 in partial fulfillment of the
requirements for the Degree of Master of Science in
Real Estate Development
ABSTRACT
This thesis evaluates the financial feasibility of a largescale
luxury condominium development from a
lender's
perspective and advises how a construction loan might be
structured
to finance the project.
The
prospective
development is the first phase of ARCORP Properties, Inc.'s
long-range development plan for the
367-acre unimproved
parcel which it owns along the New Jersey bank of the Hudson
River.
Development of the property poses a considerable
challenge given the site's lack of infrastructure, limited
vehicular access and isolated location.
Several
key attributes drive the financial dynamics of the
project.
First, because this is a large-scale development
on a difficult site, substantial infrastructure costs must
be
incurred up-front.
Second, the project's
integrated
design and the need to establish a critical mass
require
that a large stock of units be brought on the market in the
project's first phase. Third, competitive market conditions
in the waterfront region and the project's large scale will
restrain the rate of absorption and prices achieved at the
project in the short term.
The
financial
feasibility analysis indicates that ARCORP
will not be able to obtain a construction loan to finance
100% of the project's development costs simply by mortgaging
the
40-acre development parcel.
Further, ARCORP will
probably have to invest a sizable amount of equity in the
project up-front, in addition to the land. ARCORP's return
from the project is assessed, and the author concludes that
it may be
lower than is generally acceptable given the
degree of risk. ARCORP may take a longer-range view of -the
project, however, and consider it a means to enhance the
future profitability of the remainder of the site.
Thesis Supervisor:
Title:
Lynne B. Sagalyn
Assistant Professor of Planning and
Real Estate Development
3
TABLE OF CONTENTS
SCHEDULE OF EXHIBITS.......................................5
CHAPTER
I
CHAPTER
II
INTRODUCTION.................................6
THE DEVELOPMENT ENVIRONMENT
The New Jersey Hudson River Waterfront.. ....
ll
Site Attributes.............................14
West New York Political Environment.........28
The Development Team........................37
CHAPTER III
CHAPTER
IV
DESIGN CONCEPT..............................42
FINANCIAL FEASIBILTY ANALYSIS..... .......... 58
Model Assumptions................. .......... 69
Evaluating Feasibility:
Construction Lender's Perspective. e...
.......... 75
Developer's Perspective........... ....
.......... 90
CHAPTER
V
RECOMMENDATIONS............................104
ENDNOTES
................................................. 111
APPENDIX
................................................. 114
4
SCHEDULE OF EXHIBITS
Figure
1
Current Status and Scope of Major
Waterfront Development Projects...............12
Figure
2
Port Imperial Site and Proximity..... .........
15
Figure
3
Access to Site....................... ........
17
Figure
4
Transportation Alternatives
A Phase One.........................
B Phase Two.........................
C Phase Three.......................
Figure
5
by
..
..
.24
.25
.26
"The Palace at Port Imperial" designe d by
Taller de Arquitectura
A Model Photograph..................
B Rendering.........................
44
45
Table
1
Development Program by Phase......... .........
47
Table
2
Construction Phasing................. .........
74
Table
3
Summary Financial Data...............
Table
4
ARCORP's Expenditures to Date........ .........
97
Table
5
Discounted Returns Under Alternative
Land/Financing Scenarios............. ........
102
Exhibit
1
A
B
C
.
88
Development Assumptions........... ........
Project Cost Estimates............ ........
Detail of Assumptions............. ........
115
116
117
Exhibit
2
Annual Income and Expense Projection. ........
119
Exhibit
3
Absorption Projection................ ........
120
Exhibit
4
Carrying Costs of Unsold Units....... ........
120
Exhibit
5
Condominium Net Sales Projection..... ........
124
Exhibit
6
Phase-One Hard Costs................. ........
128
Exhibit
7
Development Budget Projection........ ........
129
Exhibit
8
Condominium Cash Flow Projection..... ....
Exhibit
9
Parking and Retail
Income and Expense Projection........ ........
137
Discounted Cash Flow Analysis. ...............
141
Exhibit
10
5
... 133
CHAPTER I
INTRODUCTION
ARCORP
Properties,
opportunity.
bank
of
It
the
The
has a tremendous development
owns 367 contiguous acres along
Hudson River on which it plans to
European-style
years.
Inc.
"city"
the
develop
in the course of the next 20
property
is
located in
West
west
New
to
York
a
30
and
Weehawken,
New Jersey, directly opposite midtown Manhattan.
Initiating
the transformation of the property into a lively
mixture of new housing,
offices,
considerable challenge,
however, as the site is presently a
shops,
and parks poses a
desolate scene of rotting piers and obsolete railyards.
Over the past two decades,
the New Jersey Hudson River
waterfront
has become a virtual
industrial
and transportation activities ceased as economic
events
altered
industries.
the
wasteland.
structures of the
The waterfront,
rail
The
previous
and
shipping
once a transportation hub for
industry, is virtually an island.
It is bounded on the east
by the Hudson River and cut off from the communities to
west
by the Palisades Cliffs,
the
with few east-west links and
without a continuous north-south roadway.
ARCORP's property
consequently
access
lacks
infrastructure
adequate
necessary
to
vehicular
support
its
and
the
prospective
development.
The entire development property is referred to as "Port
Imperial".
development
The first stage of ARCORP's long-range mixed-use
plan for the property is a
6
large-scale
luxury
condominium
of
complex located on 40 acres at the northern end
the site in West New York.
This complex
will
contain
approximately 2,000 units, with structured parking for 2,902
cars
and
purpose
this
60,000 gross square feet of
of
retail
this thesis is to evaluate the
proposed
development
perspective
and
loan
be
might
particular,
from
a
space.
feasibility
construction
to advise how a conventional
structured
this
to
finance
The
the
of
lender's
construction
project.
In
paper undertakes to explain how four
key
factors drive the financial dynamics of the project:
First,
the site itself imposes physical and
constraints
condition,
on
limited
substantial
to
make
Second,
the
development owing
access
to
its
and isolation.
As
marketing
unimproved
a
infrastructure costs must be incurred
the site developable and its location
result,
up-front
marketable.
a large number of units (784) will be built in
project's
first
considerations.
phase in response to marketing and
From
a
marketing
perspective,
the
design
ARCORP
believes it is necessary to establish a critical mass at the
site.
Also,
project's
because of its symmetry and integration,
design might appear awkward if fewer
built at once.
having
to
resultant
prices
carry
This poses the financial risk,
a
large
stock
of
unsold
were
however, of
units.
The
pressure to sell units will in turn restrain
achieved at the project in the short
competition
units
from
term.
7
the
Third,
other New Jersey waterfront projects
the Manhattan condominium market will impact the
the
and
absorption
rate
and prices that ARCORP's project can achieve.
ARCORP
is not the only developer that is proposing to bring a large
supply
of units on the market;
sites
are
well.
waterfront
planning to develop an unprecedented
Moreover,
depreciate
there.
other owners of
condominium
prices
are
amount
expected
in Manhattan as a result of recent
as
to
overbuilding
Finally, ARCORP has obtained permission to operate a
ferry
service between the site and midtown Manhattan.
The
improved access to Manhattan via the ferry is the key to the
value that ARCORP has created for this property.
In
the next chapter,
environment
that
the
is
an overview of
the
presented which touches on
the
the waterfront region is undergoing.
chapter
assesses
constraints
of
weaknesses
assembled
of
development
ARCORP's
the
for
the
site
development
the project.
In
and
transition
In
particular,
opportunities
the
team
development
strengths
which
addition,
ARCORP
the
to
several
major
issues
that
affect
and
has
political
environment of the Town of West New York is discussed as
relates
and
it
ARCORP's
development.
Chapter
development,
III
as
describes
what
design
the architecture is one of
most distinctive features.
of
the
concept
the
of
the
project's
The design is evaluated in terms
it implies about the construction,
marketing
and
phasing of the development.
A
the
pro forma computer model was constructed to
economic viability of ARCORP's preliminary
8
analyze
development
program for the 40-acre parcel.
the
financial
assumptions
Chapter
dynamics
the
project
and
the
major
underlying the computer model are discussed
IV.
evaluated
of
The key attributes driving
The project's financial feasibility
is
in
then
from both a construction lender's and developer's
perspective.
feasibility
The
main
analysis
purpose
of
this
is to investigate how
before-tax
a
traditional
construction lender might structure a loan for this project.
The
developer's
return from the project is
then
assessed
under two loan scenarios.
The
analysis indicates that ARCORP will not be able to
obtain a construction loan to cover 100% of the
costs
of
the project,
development
simply by mortgaging the
which comprise the development parcel.
40
Further,
acres
ARCORP is
likely to have to invest a sizable amount of equity into the
project
up-front,
concludes
that
in
addition to the
ARCORP's
land.
The
return from this project
author
may
be
lower
than is generally acceptable vis-a-vis the degree
of
risk
involved.
objectionable
project
to
However,
ARCORP
may
not
find
if it expects the image established
enhance
the returns in future
stages
this
by
of
this
the
development of Port Imperial.
The final chapter identifies issues which ARCORP should
address
before
Specifically,
feasibility
Recommendations
undertaking
these
and
issues
the
will
marketability
proposed
development.
impact
the
financial
of
the
project.
are made as to how to improve the viability
9
of
this
ARCORP's
initial development project and how
long-range
development strategy
property.
10
for
to
implement
the
entire
CHAPTER II
THE DEVELOPMENT ENVIRONMENT
The New Jersey Hudson River Waterfront
The New Jersey side of the Hudson River offers a unique
development
opportunity;
Manhattan,
it
metropolitan
devoid
of
is
area
one
within
the
parts
of
located
few
that remains uninhabited
buildings.
minutes
of
any
and
of
major
virtually
The previous industrial,
rail
and
shipping uses on the waterfront have been abandoned, for the
most part,
over the past two decades.
landowners
went
shipping
were
bankrupt
with
Many of the
the
and railroad deregulation,
advent
of
container
and acres of
tied up for years in bankruptcy court.
former
property
Now,
several
major national and local developers have acquired waterfront
sites
and
are drafting plans
developments.
Their plans,
for
large-scale,
mixed-use
as of December 1985, amount to
23 million square feet of office space,
1.9 million
square
feet of commercial space and 36,000 residential units,
shelf
of
land 18 miles long and less than a mile
sections.
wide
on a
in
Information about the current status and scope of
these major projects is provided in Figure 1.
The
waterfront
region includes eleven
within Bergen and Hudson Counties.
municipalities
Despite keen development
interest, no master plan exists for the region, nor is there
any
organization
impact
of
to coordinate and
individual
development
assess
plans.
comprehensive planning among the waterfront
11
the
aggregate
Cooperative,
municipalities,
Figure 1
CURRENT STATUS AND SCOPE OF MAJOR
WATERFRONT DEVELOPMENT PROJECTS
N.Y. Times
4arch 23, 1986
5
New Jersey's
Changing Waterfront
research and development space and
600 to 800 boat slips
five acres at Par k Streut dnd River Road
Nathan Weissman. a developer. lias
begun work on 60 lownhouses at Snelter
'Glimcher / Simon/Lefrak has proposed
'Newport City on 270 acres near the
Holland Tunnel Proposals include more
than 9,000 dwelling units. 1.2 million
square'feet of retail space. 7.2 million
squpre feet of office space. 1.200 hotel
.rooms and 250 boat slips.
At Harsimus Cove, Daniel K. Ludwig, the
industrialist, has.proposed 1.500 housing
units and 750.000 square feet of office
and retail space on 95 acres
David M. Fromerand Michael W
Bay Club An aduining site is under
contract to James D Demetrakis. a For t
Lee lawyer who plans to build two
condominium buildings
Admirals Walk. near Route 5. American
Landmark Developers has completed two
___In
11-story buildings containing 300
residential units.
Mr. Demetrakis has proposed Old Ferr y
Plaza. 540 high-rise and townhouse units
at Dempsey Avenue arid River Road.
Sonnenteldt are converting to office
space the two-million-square-foot
Shorelne Associates has proposed two
five-sdr y buildings containing 150 units,
six townhouses and an 82-slip marina at
Garden Place and River Road
warehouse callud Harborside Terminal at
Ey change Place. near the PATH station.
Bankers Trust Company has taken
385,000 square feet. The developers
American Landmark Developers plans
700 apartments in a former Alcoa plant at
Russell Avenue and River Road
Marketplace Concepts plans to build 14
retail stores.
Edgewater Associates plans to convert a
Ford plant into 722 apartments and
proposes a mixed-use development.
Lever Brothers has converted a plant at
O
plan to build a 500-car garage. 125
dwelling units, a 300-room hotel and a
20
four-story residential buildings
Shelter Innovations plans a 255-unit
residential development and a marina
Prudential Insurance fompainy may build
and is planning offices, townhouses.
apartments and retail space.
OHatz
4
M ountairn Industries has opened
G
Shanghai Red s Restaurant on a pier. It
owns 70 acres of a former container port
and is seeking a permit to develop a
140,000-square-foot office building. 250
to 300 residential units and a garage. I1
may build as many as two million square
feet of additional office space.
Anthony Dell'Aquila. He has not yet made
a formal proposal. but the site an
accommodate 1.600 residential units
12
to break ground in May for Exchange
Place Centre, a 30-story oftice tower and
fthe tallest building in New Jersey
Evergreen Marine Ltd , a container
shipping company. is completing a 1 7stor y office building on Washington Str Cet
that will be its headquar ters
Orn a 7b-ac i u situ at Gr and Sir eet.
2iender sorn Street and the Mor ris Caiial
Basin. Peter M Mocco has pr oposed
Liberty Har bor North, with 2.500 dwelling
units. 93.000 square feet of retail space
a hotel and e mar ina
At Liberty State Park. an 800-ai retsite
that was a Ireight yard. the state plans to
build a museum and exhibition center
The Spoerry Group is building Port I
Liberte at Caven Point. which will include
1.676 dwelling units. 740 boat blips, a
300-r oom hotel arid 46.000 square feet of
office space
The Port Authority has purchased
The former Bethlehem Steel shipyard was
15 sod recontly to a Hobokert developer
Jersey City will build a municipal park on
a pier at the foot of Exchange Place.
First Jersey National Corporation and
2William D Schaffel. a developer. expect
River Road and the Bergen County line
into a research and development facility
Charles S Rocco Enterprises has begun
Roc Harbor. three 16-story towers arid 17
a park m front of its Galaxy apartments
Arcorp Properties. which owns 300 acres
on the river, has a permit to build a marina
acres north of the Erie Lackawanna
Terminal for 1 00 housing units. 1 4
million square eet of otfice space.
150,000 square feet of retail space, a
400-room hotel. 750.000 square feet of
Dani Ru Cor poration hwas Ofiooed a 53
di id a iainra on
unit apartment tJuil
3
The Port Authority of New York and New
Jersey plans to use three pier s aid 130
2
a
former rail yar d as an industrial site
The Port Authority is seeking an
alternative use for Port Jersey. another of
its properties.
of transportation,
necessary
Failing
area
parking and sewage disposal policies, is
to accommodate the proposed level of development.
to plan for development could actually prevent
from
Initial
attracting
development
as much as it is
able
to
could choke-off rather than
the
support.
stimulate
additional projects because of excessive traffic and a
lack
of
with
amenities.
planning
The
authority
forums.
But
prerogative
need for a waterfront commission
has been discussed
the
sensitivity
of
in
the
several
local
public
home
rule
has precluded the State from responding to this
need.
Perhaps the most critical planning issue raised by
prospective
result.
development
The
area
is
the traffic chaos
currently
experiences
that
heavy
the
could
traffic
congestion associated with the Hudson River crossings.
Any
successful waterfront transportation system must be able
move
people
Palisades,
Jersey
across
the
Hudson,
over
or
through
and along the length of the waterfront.
to
the
The New
Department of Transportation (NJDOT) and New
Jersey
Transit Corporation (NJ Transit) are currently formulating a
phased waterfront transportation program, to which the State
has
will
committed
be
$800 million.2
based
coordination
on
State,
The
local
transportation
and
of four essential elements:
private
program
sector
road and highway
improvements, on-site parking restrictions, off-site parking
opportunities,
basic
strategy
a
is
new mass transit system.3
to "catch" auto
13
traffic
The
program's
at
intercept
parking areas west of the Palisades,
to
then shuttle commuters
and along the waterfront via mass transit - initially
a
bus guideway system which eventually would be converted to a
light rail system.
development
solving
of
the waterfront offers a
traffic
development,
If properly planned, high-density urban
problems than
because
only
better
low-density
chance
of
suburban-style
high-density development
could
sustain an effective mass transit system.4
A market analysis was undertaken by a consultant to
Transit,
Real
Estate Research Corporation,
NJ
to project the
level of waterfront development that could be absorbed based
on market demand for housing, office and retail space within
the
region.
million
feet
The
square
of
results indicate that as
feet of office space,
over
the
next
fifteen
units
years,
is
proposals
now
destined
under
to
occur
consideration,
among
18.4
square
could
provided
transportation is not a serious impediment.5
shake-out
as
1.75 million
retail space and 22,300 dwelling
absorbed
much
be
that
Obviously,
the
based
a
development
on
relative
advantages of timing, location and project economics.
Site Attributes
ARCORP's
property has the potential to become a
major
development focal point on the Hudson River waterfront.
The
367-acre
219
acres,
site
occupies 148 acres in West New York and
to the south,
in Weehawken,
New Jersey, opposite a
stretch of Manhattan running from 35th to 74th Street.
Figure
2.)
Close to a quarter of this acreage is
14
(See
actually
H
(31
I
1<
H
|-'
H
tri
0
Id,
0 N
H
U
IQ
(D
land under water, for which ARCORP holds development rights.
The narrow,
irregularly-shaped parcel extends for two miles
along the waterfront,
and at its widest point is 1,900 feet
in width.
The entire site is an uneven landfill, 20 to 180
feet
over
deep
rocks.
a base of bedrock and
strewn
with
large
The property is bounded on the west by the Palisades
Cliffs which rise 160 feet.
The communities are built atop
the cliffs overlooking the site, which is undeveloped except
for a warehouse that has been converted to ARCORP's
office,
a 100-slip marina and some decaying piers.
ARCORP
subsidiary
Properties,
Inc.
of A-P-A Transport,
is
wholly-owned
Corp., a highly successful,
New Jersey-based trucking company.
company's activities,
the
Seeking to diversify his
Arthur Imperatore, Chairman of A-P-A,
purchased the development property from Conrail in 1981
$7.75 million.
of
this
He established ARCORP to oversee development
property,
as
well as an
existing
properties in New Jersey and New York.
in
the
for
portfolio
of
ARCORP's investment
property to date totals approximately
$25
million
toward the purchase, site improvements and consulting, legal
and
overhead
expenses.6
removal of debris,
piers
Site
improvements
unused buildings,
include
the
railroad tracks,
and
and the construction of a temporary north-south
road
through the site and a 100-slip marina.
Access:
The
flies".
site
is 2,870 feet from Manhattan,
(See Figure 3.)
"as the
crow
It is approximately four-tenths of
16
Figure 3
ACCESS TO SITE
George W7shington Bridge
Lincoln Tunnel
Holland Tunnel
World Trade Center
Wall Street
Convention Center
Grand Central Station
Tunes Square
Empire State Building
Rockefeller Center
Lincoln Center
South Ferry
Meadowlands Sports Complex
Penn Station
Proposed Midtown Ferry Service
Projected Downtown Ferry Ser
Z*
17
a
mile from the Lincoln Tunnel,
two-and-a-half miles
from
the PATH station in Hoboken and three miles from the Holland
Tunnel,
of
yet it sorely lacks adequate,
these
crossings.
Vehicular
restricted to three entranceways,
for the prospective development.
site,
there
direct access to any
access
to
the
lane
is
all relatively inadequate
At the northern end of the
is direct access onto River Road,
two-to-three
site
a
road that begins in Edgewater
twisting
and
runs
south, passing along the site's western edge before it bends
west and ends in West New York.
is
a narrow,
crosses
East
partially-paved right-of-way
unguarded railroad tracks and opens onto
at
access,
lane
winding,
Access via the southern end
the
approach to the Lincoln
Tunnel.
which
Boulevard
The
third
Pershing Road, is at the center of the site. A two-
ramp,
it
is
one of the few
narrow
ways
down
the
Palisades.
Perhaps
the greatest potential for improved access
is
that of an existing cut through the Palisades, the Weehawken
Tunnel, 4,200 feet long and 20 feet wide, which is currently
used
by
Conrail
to
run
freight
trains.
Conrail
is
considering vacating the tunnel, which could be bored out to
its
full 34-foot right-of-way and used to run an
light
rail system from the waterfront to
the
east-west
meadowlands.
ARCORP has already purchased a north-south right-of-way from
Conrail
which
extends through the site and
mile beyond the site's northern boundary.
mile
of
this
right-of-way
18
effectively
continues
one
The northern-most
cuts
off
the
waterfront from River Road.
waterfront
ARCORP,
parcels
in
order
The owners of these
will have to negotiate
to
gain
River
Road
"blocked"
easements
access
to
with
their
respective sites.
Over
efforts
the past five years,
ARCORP has concentrated its
on obtaining the requisite government approvals
facilitate
development
residential uses.
of
its
Namely,
site
for
commercial
and
ARCORP has sought permission to
operate
a ferry service between the site and Manhattan
zoning
revisions
that
development of the site.
ARCORP
to
will
allow
high-density
and
urban
After eighteen months of lobbying,
has obtained a permit to provide ferry service
from
the site to an acre of waterfront property which it owns
38th Street,
midtown
as
of
May
hour,
take
near the new Jacob Javits Convention Center in
Manhattan.
passengers
1986,
(See Figure 3.)
5 a.m.
three
minutes.
approximately
ARCORP is authorized,
to transport hourly
in each direction,
from
ferries
to 2 a.m.
ARCORP
a
maximum
of
600
in up to four crossings
per
The crossing is reported to
has
already
$800,000 one of the two
purchased
high-speed,
that it intends to put into service.
anticipates
downtown
at
77-foot
ARCORP
obtaining a permit to provide ferry service
Manhattan
at the South Ferry
docks,
a
for
also
to
crossing
which reportedly takes eight minutes.
Zoning:
Over
build
a
the next thirty years,
the Imperatores
European-style city with up to 15,000
19
plan
to
residential
units
and
their
10 million square feet of
New
ordinance
Jersey
which
for
property.
A
the Weehawken waterfront has
allows
residential
waterfront
commercial
13 million square feet of
development,
subject
to a
space
new
been
on
zoning
adopted,
commercial
maximum
and/or
of
4,750
dwelling units and "view plane" height restrictions. In West
New
York,
would
a new ordinance is currently under review
permit
a maximum of 50 dwelling units per
which
acre
and
limit commercial development to 35% of the gross area of the
waterfront district.
ARCORP
has requested a proportionately equal amount of
density in both towns.
the
proposed
ARCORP
The fundamental difference
between
development in the two jurisdictions is
that
projects that the development in West New York
will
be largely residential, with only 20% commercial. Within the
Weehawken boundaries, the site opposite the Weehawken Tunnel
at
the
center
location
for
of the property is deemed to
commercial
development
and
be
a
the
main
best
ferry
terminal.
The first phase of ARCORP's long-range development plan
is a luxury condominium complex located at the northern
of
the property in West New York.
end
The northern end of the
site presently has the best vehicular access via River Road,
which
is
in
need
of
less
entranceways to the site.
residential
residential
project
than
the
other
ARCORP has decided to develop
first,
development
improvement
because
it
believes
is a more effective catalyst
20
a
that
than
commercial
for
favorable
generating
presence
at
activity
the site.
and
establishing
Another factor
in
a
the
decision to develop the northern end first is the
existence
of
immediate
a
residential
vicinity.
high-rise
complex
in
the
This project, the Galaxy Towers located atop the
Palisades
in
residential
Guttenberg,
presence
in
has
established
a locale that
was
a
successful
predominantly
industrial in character.
The
first-phase
approximately
forty
development
acres,
fifteen under water.
West
New
calculated
on
developed.
the
Thus,
consists
of
upland
and
twenty-five acres
Under the
York ordinance,
parcel
provisions of the proposed
fifty dwelling units
basis of
ARCORP
the
entire
per
parcel,
acre,
may
be
could potentially develop up
to
approximately 2,000 units on the parcel. The development may
be
contained
into
on the upland portion of the site
the water.
Normally,
platforms
would
provisions
of
ARCORP
require
the
or
extend
the construction of over-water
a
special
proposed
zoning
permit,
despite
ordinance.
the
However,
may replace as-of-right any existing piers
with
an
equivalent area of new over-water platforms, at any location
behind
the bulkhead line.
Clean-Up
Project,
removing
rotting
the
As part of its New York
Army
piers,
Corps of Engineers
piles and bulkheads
on
Harbor
has
been
ARCORP's
site, at no cost to ARCORP.
The program for the luxury condominium complex of 2,000
units consists of approximately 2,979,000 gross square
21
feet
of
residential space with a net saleable area of
square feet.
The project will contain approximately 60,000
gross square feet of commercial space,
be
located in a seperate structure.
square
three
41,000 of which will
The remaining
19,000
feet will be distributed among the ground floors
of
the residential buildings.
structure,
feet,
2,413,770
containing
will
be
A 2,902-car
approximately 870,600
parking
gross
constructed along the back of the
The entire complex will be lavishly landscaped,
of
square
complex.
including a
waterfront esplanade, a piazza, reflecting pools, and formal
walkway network.
Development Opportunities and Constraints:
The
site
opportunities.
The
approximately
development
presents
$21,000
to
low
overwhelming
land
per
cost,
acre,
development
$7.75
should
million
allow
absorb the high site preparation
roads and infrastructure.
or
ARCORP's
costs
of
The tremendous value created via
the
zoning revisions alone has increased ARCORP's equity in
the
property dramatically.
(The property has been
valued
independently at as much as $400 million.)
The
located
ARCORP
sites on the waterfront.
the
project
also
site is one of the largest and
and
conveniently
Its large scale
opportunity to control the environment
to create a favorable setting.
The
facilitates several immediate and long-term
Two important
to present transportation problems.
of-way
most
traverse
the
site,
22
the
one
running
affords
of
the
location
solutions
rights-
north-south
through
the
east-west
site which ARCORP owns and the
through
the Palisades via the
other
running
Weehawken
Tunnel
which ARCORP is negotiating to purchase from Conrail.
rights-of-way
may
be
utilized to create
an
These
express
bus
commuter link between the waterfront and northern New Jersey
suburbs.
light
This bus service could eventually be upgraded to a
rail
system,
progresses.
(See
as
development
Figures 4A-C.)
of
the
waterfront
Because of its size
and
the paths of the rights-of-way, the site is an integral part
of
NJDOT's
control
mass transit plan
of
the
for
north-south
the
region.
right-of-way
ARCORP's
improves
its
negotiating position with NJDOT regarding the transportation
plan
and exactions of land and cash from ARCORP to
support
the plan.
By
far
the
most
outstanding
feature
of
ARCORP's
development scheme is the planned ferry service between Port
Imperial
and
Manhattan.
accessibility
site
to
than
Manhattan.
setting
The
from
some
prime
the
residential
a
unique
include
the
locations
in
property's
location
for
the
The exceptional features of this
magnificent
amenities.
Palisades
residential
faster
from
The ferry service combined with the
provide
waterfront
facilitates
midtown and downtown Manhattan
development's first phase.
setting
ferry
views of
Further,
Manhattan
and
the
the seclusion provided by
will allow the development to
establish
an
identity distinct from the adjacent communities.
The
site's
isolation is
23
also
a
drawback,
however.
Figure 4A
TRANSPORTATION ALTERNATIVES:
PHASE ONE
o
2000 4000
Feet
z
z
5
7TH SI
I
Legend
ARCORP Properties
aumummuuuuuu
New Boulevard
(Express Bus Route)
4====== Shuttle Bus Routes
New Auto Access
4
e...e
Ferry
Vollmer Associates
24
Figure 4B
TRANSPORTATION ALTERNATIVES:
PHASE TWO
1-9
-
-0
2000
C1o
NO TH
ERGEN
4000
Feet
<
95
SWEST
NEW
YORK u
E
5 7T H S-
Legend
ARCORP Properties
0+++4
Intercept Parking/Rail
Shuttle
New Auto Access
New Rt. 495 Connector
Widen River Road
Bus Guideway
Vollmer Associates
25
Figure 4C
TRANSPORTATION ALTERNATIVES:
PHASE THREE
1-9
0
2000 4000
Feet
95
z
NO TH
ER'GEN
MEADOWLANDS
u95
WEST
NEW
A
R
PYORK
5
-
7THSI
WEEHAWKEN
NION
CITY
uoco)
I:
T
4HOBOXEN
Legend
*a
ARCORP Properties
Intercept Parking/Rail
Shuttle
Light Rail
JERSEY CITY
Vollmer Associates
26
Access
to the site is limited.
The three existing
access
routes do not provide adequate means to support the level of
traffic
that the development will generate.
infrastructure exists at the site.
road improvements,
gas,
of
Virtually
no
Besides on and off-site
all utilities (water,
sewer,
telephone) must be brought to the site.
electric,
The proximity
existing utility connections will be known once a survey
of the site,
currently underway, is completed.
attract people to live at the site,
retail
such
"infrastructure"
as food,
In order to
there must also exist a
composed of
convenience
services
pharmacy and drycleaning establishments,
as
well as restaurants.
Other
include
constraints
physical
waterfront
and
location
necessitate
congestion
the
factors.
and
soil
landfill,
the
development
regulatory
poor
additional
platforming,
surrounding
on
the
The
expenditures
for
the
site's
Hudson
will
bulkheads,
and special foundations.
with
site
conditions
site currently experiences
associated
of
The area
heavy
River
traffic
crossings.
Since area roads are already at or near capacity, successful
development
of the site,
over the long term,
will
depend
upon the implementation of a regional mass transit plan.
The
site's location on the waterfront also
development
approval
municipal
Department
subject
process
involving
agencies.
of
to a lengthy and rigorous
federal,
state,
makes
the
review
and
county,
and
Legislation enacted by the New Jersey
Environmental
27
Protection
mandates
the
incorporation
of a continuous public walkway in the
design
of all projects located along the region's waterfront.
This
poses a problem for ARCORP in reconciling public access with
a secure and exclusive marketing image for its project.
West New York Political Environment
The
most
densely
populated
municipality
in
Hudson
County, the Town of West New York is one of the most densely
populated urban areas in the country.
square
mile,
42,000.
the
Hudson
in
particular,
primarily
of
Town has a population
County has a very
minority groups.
Occupying roughly one
high
of
approximately
concentration
of
West New York and neighboring Union City,
have
a very high proportion of
Cuban origin,
Hispanics,
who represent 63% and
64%
of
their populations, respectively.8
Hudson
in
New
Jersey
Similarly,
(less
County is the third poorest of the 21
the
than
as measured
by
median
counties
household
income.
County has a disproportionate share of
50% of the State median household
low
income)
and
80%
of
the
Statewide median) as compared to the State as a whole. 9
The
moderate-income
1980
U.S.
households
Census
(between
reported
that low and
households comprised 40% and 19%,
New York households.
50% and
moderate
income
respectively, of all West
The problems of high unemployment and
the loss of jobs to outlying suburban areas are also readily
apparent
New
in Hudson County.
The unemployment rate in
York was 12.1% in 1983,
rate of 7.8%.
in contrast to
the
West
Statewide
Despite the steady increase in the number of
28
jobs
in
the
State
from
1974
to
1984,
West
New
York
experienced an 18% decrease in jobs over that period. 1 0
As
in
County's
most
populated
urban
housing
units.
West New
with
15%
substandard. 1 1
of
the
Accordingly,
housing
guidelines,
County
West
housing
classified
as
West New York receives federal
communities.
New
multi-family,
renter-occupied
units
funds for publicly-subsidized housing,
Hudson
Hudson
York's
consists of 91% multi-family and 80%
units,
the
areas,
housing stock consists primarily of
renter-occupied
stock
densely
as do nearly all
Further,
under
York is one of seven of
the
of
State
twelve
Hudson County communities that are designated as "Urban Aid"
municipalities.
maintenance,
As
such,
it
improvement
and
receives State aid for
upgrading
of
the
municipal
services. 1 2
Despite these dim circumstances, recent trends indicate
that
Hudson
County
revitalization,
the
stands to benefit from a new
wave
given its close proximity to Manhattan
of
and
resounding growth of the New York City economy over the
past
decade.
particularly
spurred
The notable increase in jobs
in
in the financial services sector,
demand
in New Jersey for housing
and
Manhattan,
has in turn
back-office
space, which are convenient to Manhattan yet relatively more
affordable.
in
Development
pressure began to intensify first
Hoboken
and
Jersey City nearly
communities
are
undergoing
a
a
decade
renaissance
in
ago.
terms
Both
of
residential and commercial redevelopment, particularly along
29
the waterfront.
New
York
which
However, this has not been the case in West
and most other municipalities in
have
lagged
behind
the
two
Hudson
County,
leaders
in
the
revitalization effort.
Lengthy
bankruptcy
landowner,
the
development
procedures
Penn
Central
of the West New York
involving
the
Railroad,
forestalled
waterfront.
Now
controls
the entire waterfront in West New York;
occupies
approximately
Town.
Under
the
suburban-style
former
ARCORP
its
site
one third of the total area of
site's
present
residential
dwelling units per acre,
zoning,
development
the
low-density,
is
allowed:
20
maximum height of 32 feet, minimum
open space of 30% of the upland area. In view of the sizable
physical constraints on development of the site, the lack of
infrastructure
economically
ARCORP's
and poor soil conditions,
develop
approach
to
the
site
obtaining
at
ARCORP could
such
a
low
a rezoning
of
not
density.
the
site
displays two interesting elements of strategy.
Edward Imperatore, General Manager of ARCORP and Arthur
Imperatore's nephew, has personally led the rezoning effort.
His
first strategic decision was to pursue a change in
zoning
request
was
ordinance for the waterfront area,
a variance,
imperative
rather
the
than
to
by demonstrating that a higher density
to make development of the
site
feasible.
ARCORP has submitted a draft ordinance to West New York that
proposes a density of 50 units per acre, a maximum height of
160
feet (the height of the Palisades),
30
and an open
space
requirement
of
20%
of
the
overall
(including land under water).
development
area
Under the proposed ordinance,
commercial and light industrial uses may occupy no more than
35% of the gross area of the site.
If
successful,
obtaining the zoning revision via this
approach would afford ARCORP two advantages.
the site would become as-of-right.
higher
density
provisions
Also,
would
not
Development of
approval of
be
subject
simultaneous
approval
development,
as is required in a variance request.
of
a
site plan
for
the
the
to
proposed
ARCORP
did not have a site plan to present at the time it submitted
the
ordinance;
present
prematurely
Moreover,
from
nonetheless,
a
the
site
it probably was wise
one that would be subject
to
plan could have diverted the
subject
of
economic
not
to
change.
discussion
feasibility
to
design
aesthetics, possibly to the detriment of ARCORP.
One might expect the citizens and officials of West New
York
to
would
be eagerly awaiting the economic development
presumably result from ARCORP's
Instead,
the
reserved,
population,
Town's
even
the
waterfront
that
project.
attitude toward ARCORP's proposal
apprehensive.
Hispanic
The
majority
community,
of
apparently
is
is
the
not
organized, for not one member has appeared at a Town meeting
to
discuss
voiced
which
the
project.13 The only constituency
its opinion is a small,
is
in opposition to the
vocal,
proposed
have
upper-income
group
ordinance.
This
group consists of residents of three high-rise
31
to
developments
located
atop
concerned
the
Palisades
in West
New
York,
who
are
with preserving their view of Manhattan and
that their property values will fall because of
fear
competition
from ARCORP's project.
The
major credible issue of public
ARCORP's
raised
prospective
by
concern
development is that
Town officials.
Namely,
regarding
which
concern
has
been
exists
that
ARCORP's development might impose a fiscal drain on the Town
owing
and
to the expansion of essential services such as police
fire protection,
etc.,
that
street
notwithstanding
repair,
garbage
collection,
the large increase in tax
is projected to result.
In response to this concern,
ARCORP has made a rather daring strategic move.
that
of
of
To
ensure
the Town will not face unforeseeable costs as a result
its development,
provision
law.
rateables
of
ARCORP has proposed to
privatize
the
municipal services to the extent possible
by
This includes the construction, repair and maintenance
its project's roads,
on-site
garbage
collection,
the
provision
of most security,
services,
and the payment of its pro rata share of the cost
to
upgrade
the
fire protection and
Town's sewage
treatment
administrative,
educational
and
services
have
provided
ARCORP
Listokin
would
commissioned
to
to
be
Doctors
Robert
facility.
occasional
by
Town. 1 4
the
Burchell
and
David
of
the
The report was written
the assumption that ARCORP's development property
32
Only
emergency
prepare a report on the fiscal impact
ARCORP development on West New York.
on
emergency
would
be
entitled to some form of tax abatement in
the
exchange
rateable base addition of the development,
the
privatization
findings
of
indicate
municipal
that
by
as well
services.
1991,
West
The
New
for
as
report
York
would
experience a 25% expansion of its current tax base and a 14%
reduction
policies
of its current tax rate (provided current
continue),
addition,
the
development,
notwithstanding a tax
report
West
projects
that
fiscal
abatement.
without
New York would experience
a
In
ARCORP's
cumulative
fiscal deficit of $0.9 million by 1991.
ARCORP
submitted its draft ordinance to West New
in the summer of 1985.
present
then
Officially, the Mayor must formally
the ordinance to the Planning Board,
subject
to
Commissioners.
approval
by
Mayor
Mayor
and
Board
of
Members of the Planning Board
appointed by the Mayor,
Board.
the
whose vote is
West New York's Mayor and Commissioners are
part-time elected officials.
are
York
who also holds a place on
Anthony DeFino not only "officially"
the
wields
substantial power in West New York, he indeed "unofficially"
runs
large
the
show
physical
personality.
in that Town.15 His domineering
size
Oddly
have
made
enough,
him
quite
however,
year
before
Planning
The
ordinance,
finally
Board
introducing
the
a
he
indecisively regarding the rezoning issue.
style
has
and
political
behaved
He hedged for a
ordinance
to
the
approval
of
the
of
the
in July 1986.
Planning
which
Board has recommended
is
now
subject
33
to
the
vote
Commissioners
practically
have
and the Mayor.
certain.16
already
Final approval is viewed
Nevertheless,
Mayor
DeFino
jeopardized his reelection in 1987,
as weak leadership.
reelection
his
matter
Notwithstanding the rezoning issue, his
prospects
quintessential
may
for
opponents can construe his sluggish behavior on this
as
are
liberal,
dubious.
Mayor DeFino
"big-government"
is
Democrat,
the
whose
ideology differs from that of the Cuban majority in West New
York.
The
Cuban
conservative,
from
for
pro-business,
government"-style
susceptible
community,
the
and
politics.17
most
suspicious
That
West
A Republican,
Cuban
Menendez,
Democrat,
Weehawken
and
Union
Iacone,
are
City,
"big
York
is
the recent mayoral elections in neighboring
is
of
New
to conservative Republican inroads
and Union City.
part,
is
evident
Weehawken
and a conservative
presently
the
respectively.
Mayors
of
Menendez,
in
particular,
is
instrumental
in placing another conservative Cuban Democrat
an
opponent
of
DeFino
and
could
be
against DeFino in the 1987 race.
Edward Imperatore has developed a good rapport with the
DeFino administration.
Should DeFino not be reelected
and
ARCORP have to negotiate with a new cast of characters,
the
project
could
ARCORP's
major
incur
perspective,
issues
to
be
additional
the
risk
delays.
From
rezoning is the first of
three
resolved with
the
significantly
affect
barely
to discuss the other two
begun
its development
34
and
Town
plans.
subjects
which
will
ARCORP
has
with
the
Town,
tax
abatement and the upgrading of the West New York
sewage treatment facility.
will
It is doubtful that these issues
be resolved in a more expeditious manner than that
in
which the rezoning has been handled.
West
high
New York's real estate tax rate is
within
percentage
Hudson County,
of
largely because
While the tax rate is high,
assessed
valuation,
high
low
$112.22
per
at the current assessment ratio.
at
Still, the annual
tax expense on a $200,000 house is sizable,
almost
$11,000
This presents a marketing
obstacle to ARCORP's condominium project.
prices,
the
assessments are fairly low
about 48.5 percent of true local value.18
sales
of
low income households and corresponding
property values.
$1,000
comparatively
To realize higher
ARCORP must lower the cost of living at
its
project vis-a-vis other New Jersey waterfront projects.
The
high
property
tax rate would negate the income and
tax advantages vis-a-vis New York as well,
ARCORP's
State
specifically
municipalities
blighted
lieu
New
thereby reducing
competitiveness with Manhattan projects.
law,
for
known as
excise
Fox-Lance,
New
are permitted to designate vacant
the purpose of exacting reduced
Under
Jersey
lands
as
payments
in
of taxes. 19 Edward Imperatore has requested that
York
use
its powers to abate the
taxes
a
on
West
ARCORP's
waterfront property, in view of both the favorable projected
fiscal impact of the development's tax base addition and the
privatization of municipal services.
West
New
York's sewage treatment plant
35
is
presently
operating
at
near
capability.
The
capacity with
State
has
only
issued
a
primary
treatment
decree
that
all
municipalities must have secondary sewage treatment capacity
by July 1988.20
New
York
Although
will
be
the requisite capacity in West
greater
ARCORP's
development.
certificates of occupancy probably would not
this deadline is not met.
its
with
building permits may be issued for new development
projects,
if
Obviously,
be,
ARCORP has proposed to
bear
pro rata share of the cost to upgrade the West New York
plant,
which
currently pumps waste through
into the Hudson River.
ARCORP's
site
A thorough analysis of the scope and
costs of upgrading the facility has not been conducted.
discussion
to
date
of means of
structuring
package
to
favored
method seems to be a municipal
whose
terms
upgrade the plant has been very
ARCORP
a
to
financial
general.
bond
issue,
would service its pro rata
hook-up fees paid on a per-unit-occupied basis.
not
The
The
under
share
Whether
via
or
ARCORP would be required to contribute capital up-front
finance the plant improvements has not been
ruled
The
implications for ARCORP's development of the
and
timing
of
the plant
improvements
are
out.
financing
serious,
yet
unclear at present.
Once the rezoning is achieved,
plan
ARCORP must file a site
for the first phase of its development to initiate the
and permitting process
at
the
municipal
design
approval
level.
The State and County both also play a direct role in
the review and approval process.
36
The New Jersey Department
of
Environmental
requirement
to
Protection (DEP) has legislated the
date
that
is
applicable
to
the
only
entire
waterfront region, that is there must be a continuous public
walkway
every
along the waterfront incorporated in the design
development.
What
constitutes
acceptable
of
public
access, however, is left up to the respective municipalities
at
present.
The DEP is also charged with reviewing
plans
and
issuing permits for new development within 500 feet
the
river.
Report
is
Final preparation of an
underway,
Environmental
as required under
Federal
of
Impact
Law,
for
submission to the State DEP. A draft report has already been
reviewed
Hudson
will
and
commented upon favorably by the DEP.
County,
have
it has water and sewer master
direct ramifications for
ARCORP's
As
plans
for
which
development.
Given the numerous parties and issues involved in the review
and
approval
tentative
process
schedule
for
this
development,
ARCORP's
to break-ground by March 1987
is
very
ambitious.
The Development Team
Backed
financial
estate
by
A-P-A
position;
development
Transport,
however,
experience.
ARCORP
has
a
strong
the organization lacks
real
Its inexperience is
even
more striking when one considers the scale and complexity of
the
proposed first phase of the Port Imperial
Arthur
the
Imperatore has been the primary
development.
inspiration
grandiose development plans for Port Imperial.
37
behind
In his
early
sixties,
Mr.
Imperatore
is a very
determined self-made business man.
of
the
stock in A-P-A,
approach $200 million.21
A-P-A,
competitors
decade,
founded by Mr.
although
it
Compared
with
earned
an
profit
For
margin has been first
industry average of
the
or
of
five
to
outperforms
ranks only fifty-eighth in terms
an
said
Imperatore
consistently
in the trucking industry.
A-P-A's
and
He owns over 90 percent
and his total fortune is
and his brothers forty years ago,
its
successful
second,
revenue.
cents,
astonishing seventeen cents on every
past
A-P-A
dollar
in
1983. 22
Beginning in the 1970's, Arthur Imperatore has overseen
the
assemblage
holdings
in
principally
Palatine
New
by
Realty
of an impressive portfolio of
York and New
ARCORP,
Corp.
Jersey.
real
These
are
which operates under the
in
New
York.
The
estate
owned
name
organization's
previous real estate development experience is limited to
condominium
development in 1982,
Cliffside Park,
because
The
project
was
which was unsuccessful largely
carrying
marketed by local brokers
working
costs.
on
a
Consequently, these brokers were as eager
sell a house or a unit in a competing development as
Cliffhouse,
a
the 76-unit Cliffhouse in
of ineffective marketing and high
commission basis.
to
New Jersey,
of
simply
to
earn
their
sales
in
commissions.
Cliffhouse units finally began to sell once a consultant and
his
sales force were retained on-site on a full-time salary
and
commission
basis.
For the Port
38
Imperial
residential
development,
sales
the marketing strategy is to form an
staff,
in-house
rather than utilize an outside consultant
or
brokerage firm.
Among
other properties held by ARCORP,
via
are two important sites in midtown Manhattan.
of
the
Avenue
Jacob Javit's Convention
Center
and
36th
is
development
The
Directly east
new
of a hotel,
development
experienced
develop,
Street,
is
Palatine
residential and
under
a
similar
at
Eleventh
undertaking
parking
a joint venture of
developer partners.
Palatine,
the
complex.
Palatine
and
two
Palatine also proposes to
joint
venture
arrangement,
approximately three million square feet of office space on a
25-acre site which it controls along the waterfront
between
35th and 41st Streets.
ARCORP
is staffed by a small number of people.
Given
the organization's extensive development plans, this limited
staff
may be strained and therefore inadequate in
development of this volume and complexity.
ARCORP
managing
appears
to have acknowledged these shortcomings by structuring joint
ventures with experienced developers to initiate development
of its properties.
ARCORP is in the process of negotiating a participation
agreement with an experienced residential developer,
City Dillon,
residential
based
Inc.
Forest
(FCD), for the purpose of developing the
complex at Port Imperial.
FCD is a Cleveland-
public company that was founded in the 1920's by
Rattner
family,
whose members still hold key positions
39
the
in
the
firm.
It
residential
has developed and constructed
units
throughout
the
expertise
is modular construction,
components
which it manufactures.
United
over
40,000
States.
FCD's
utilizing prefabricated
The FCD components
building method,
which are described in Chapter
most
utilized in the construction
likely
be
III,
of
and
will
ARCORP's
project.
Although
disclosed,
in
all
the
terms
of the agreement
have
been
it appears that FCD will be an equal participant
financing,
marketing,
design,
decisions relating to the project.
and
will receive an equity kicker,
construction
FCD will not,
have a direct ownership stake in the property.
exchange
not
however,
FCD
instead
or share of the profits,
in
for the contribution of its development expertise,
commonly referred to as "sweat equity".
The joint
venture
may retain FCD to act as general contractor (or construction
manager) for the project; however, this is not a requirement
of
the pending agreement.
The manner in which ARCORP's in-
house construction staff would interact with FCD under
such
an arrangement is unclear.
FCD's
track
record
no
doubt
creditworthiness of the project.
construction
Familiarity
will
However,
enhance
FCD has limited
experience in the New York metropolitan
with
local
subcontractors,
the
unions,
area.
building
codes, and trade jurisdictions and practises is essential to
managing
a project of this scope,
involve
prefabricated
particularly as it
construction.
40
In
this
will
respect,
ARCORP's
Director
of
tremendous resource.
oversee
Construction,
Mr.
Louis
Newman,
is
a
Newman recently joined ARCORP to
its newly formed construction department.
He
has
over thirty-five years of construction experience in the New
York
area
and
has been a senior member
of
some
of
the
team
is
the
construction industry's foremost organizations.
Another
architect
Bofill
in
The
key
of
the
Spain
Port
States.
This poses a potential
drawings
that
ARCORP
Ricardo
Bofill.
the
drawings
are
must
be
logistic
converted
intelligible by
American
world.
in
the
working
its
to
working
contractors.
by
Apparently,
is
in
advisable
in
which a
Bofill
Bofill
important
closely
Instead,
however,
ARCORP
to
is
with construction of an on-site studio, adjacent
office,
directed
drawings.
the
problem.
considered hiring an American architectural firm
proceeding
done
complex,
Imperial project is his first commission
design
It
residential
and France are well-known throughout
Bofill's
to
of the development
is a Spaniard whose large-scale residential projects
United
do
member
will
team
prepare
of
the
European
draftsmen
working
drawings.
will manage the entire design
that
ARCORP's
construction
process.
staff
with Bofill's team to ensure that the drawings
accordance
for
ARCORP
with
to
local
retain
standards.
an
It
American
architect to monitor construction of the project.
41
is
work
are
also
inspecting
CHAPTER III
DESIGN CONCEPT
is
It
the
express desire of Arthur
Imperatore
ARCORP's residential development evoke an image of
grandeur and classical elegance.
that
European
His overriding concern is
to establish an acclaimed presence in the region through the
originality
and
quality
of his
project's
design.
project
is the first phase in ARCORP's long-range
develop
a
effect,
on
beautiful
and exciting
the 367-acre site.
waterfront
plan
to
"city",
in
The high density and large
scale of Phase I are deemed necessary first,
high site improvement costs and second,
of activity and vitality,
This
i.e.
to balance the
to generate a level
a critical mass, which will
enhance the site's attraction for future commercial
tenants
and residents.
Arthur Imperatore's taste for continental
and interior design led him to Europe,
work
of
Bofill
well-known
has
Spanish
designed
complexes in Spain and France.
what
where he admired the
architect,
several
architecture
Ricardo
large-scale
Bofill.
multi-family
He has gained notoriety for
he proclaims to be his "castles for the working
affordable
housing projects of
whose
facades
(e.g.
Walden
prefabricated
are embellished with
7
in
Barcelona,
construction
neo-classical
Spain
1974)
man",
motifs.
Typically
monumental in scale, his designs are almost sculptural owing
to
the
heavy
massing and tightly
integrated
(e.g. Barrio Gaudi in Reus, France 1985)
42
components.
Ricardo
request
Bofill's
is
design.
indeed
a
response
bold
to
and
Arthur
Imperatore's
monumental
neo-classical
The name given the complex,
"The Palace", relates
to the grand proportions, ornamental facades and formal open
spaces
of
the
plan.
The facades
will
be
marble
with
decorative precast columns 1 and continuous vertical bands of
glass,
crossed by horizontal bands of glass at every fourth
floor.
The
consists
focus
of
Bofill's
symmetrical
master
of four crescent structures which are arranged
pairs and aligned parallel to the waterfront.
plan
in
The crescents
within each pair are turned inward slightly and linked by an
arch.
Each of these arches faces another arch,
the
ends of the respective outer crescents.
located at
The two inner
crescents are linked by a central arch through which a
one-
story structure, containing approximately 41,000 square feet
of retail and ferry terminal space,
extends into the river.
(See Figures 5A-B.)
Along
the
Palisades,
below
back of the project and at the edge of
is a four-level parking structure with one level
grade.
The upper three levels will be
meet the slope of the Palisades,
berm,
to
appear
cliffs.
require
This
either
structure
and
rise
to
then covered with an earth
of
the
method of construction is expensive and will
underground
end
terraced
to have been built into the side
ventilation.
building
the
The
poor soil
parking beneath
conditions
the
at a break in the center
three towers.
43
The center
prohibit
crescents.
of
the
tower
At
parking
contains
Figure 5A
K
"THE PALACE" MODEL PHOTOGRAPH
N
Figure 5B
I(3j.
EMP2RIAL
WESTHWoORK
4
6
a
'~I5.jc29
44
4-9:
.,
i
i
ta%.1I
VE
_e
"THE
PALACE" RENDERING
Uh.uak
I h1.
iWMAageMnauM"_
U
.
-U
approximately
9,000
ground floor.
Located between the center tower and the one-
square
feet of retail
space
on
the
story retail structure is a piazza through which a four-lane
boulevard
passes parallel to the crescents.
A
1,600-slip
marina is planned that is bounded by two viaduct structures,
each
designed with double arches that are perpendicular
the shore.
towers,
All of the structures,
and
viaducts,
are
sixteen
archways are twelve stories high.
arch
are
the crescents,
stories
(i.e.
to
arches,
high.
The
The legs of
each
twelve stories and the bridge across the
top
is
four stories.)
The
program
for the master plan has not
been
firmly
defined, in terms of the gross and net square footage of the
buildings
or the unit mix.
been firmly established.
Bofill's
assumed.
ratio
(net
to gross square
A
residential
feet)
of
81%
is
No residential units will be located on the ground
of
the buildings.
circulation,
ground
The program in Table 1 is based on
June 1986 presentation to ARCORP.
efficiency
floors
Neither has a phasing schedule
The ground floors will
storage and mechanical
floors
space.
in the two mid-crescents and
contain
However,
central
the
tower
will contain some retail space.
All of the structures will be built on
basements,
table.
built,
since
piles,
without
the site is a landfill with a high water-
The viaduct structures in all likelihood will not be
as
crescents.
they
would
block
the
view
from
the
outer
However, ARCORP wants to protect its development
46
Port Imperial
West New York, New Jersey
DEVELOPMENT PROGRAM BY PHASE
Table 1
TOTAL
GSF
RSDNTL
NSF
# OF
UNITS
AVG UNIT
SI2E
451,170
451,170
83,430
364
364
56
1,240
1,240
Retail
557,000
557,000
103,000
41,000
Subtotal
1,258,000
985,770
784
1,260
1,448
714,500
579,000
474
1,220
806
1,972,500
1,564,770
1,258
1,245
2,254
714,500
579,000
474
1,220
648
2,687,000
2,143,770
1,732
1,240
2,902
333,000
270,000
270
1,000
0
2,413,770
2,002
1,205
2,902
# PKING
SPACES
CUM. PKING
RATIO
PHASE ONE:
N-Mid Crescent*
S-Mid Crescent*
Central Arch
668
780
1,490
1.85
PHASE TWO:
South Crescent
& Two Arches
Cum. Subtotal
1.80
PHASE THREE:
North Crescent
& Two Arches
Cum. Subtotal
1.70
PHASE FOUR:
Three Towers**
TOTAL:
3,020,0O0
*CEach contains 5,000 gsf of retail.)
**CCenter Tower contains 9,000 gzf of retail.)
***(Master plan also includes two viaduct structures,
each containing 319,000 gsf, 258,500 nsf and 196 units.)
1.45
rights
do
associated with the adjacent land under
so,
future
water.
To
ARCORP may have to grant a negative easement to the
condominium owners' association,
to ensure that
it
will not develop any structures that would obstruct the view
from the Palace. 2
The
the
retail and landscaping portion of the program
project amenities are sketchy at
present.
and
originally,
Bofill's program included 50,000 gross square feet of retail
space:
41,000
square
feet
located
in
the
one-story
structure which extends through the central arch,
and 9,000
square
feet
ARCORP's
that
of
the ground floor
marketing consultant,
the
retail
in
of
Fred
the
central
VanderKloot,
tower.
reports
project will contain 60,000 gross square feet
space, 3 owing to the provision of 5,000 square
retail
space on the ground floor of each
of
crescents.
Based on an efficiency ratio of 80%,
be
rentable
48,000
square
feet
of
retail
the
of
feet
mid-
there will
space.
The
proposed tenant mix includes:
30,000
10,000
10,000
5,000
3,000
2,000
gsf
gsf
gsf
gsf
gsf
gsf
Retail facilities
Health Club
Restaurants
Theatres
Commercial office
Ferry terminal
60,000 gsf
The interior plan of the crescent structures,
referred
to
by Bofill as the Vertical Articulation Module,
consists
of
vertical blocks of units that are laterally
The
respective
contained;
no
vertical
blocks
are
essentially
interior corridors exist to
48
juxtaposed.
link
self-
adjoining
blocks
above
the
approximately
separate
eight
is
ground
three
service
to
floor.
Each
five units per
core and interior
block
floor
and
entrance.
cores within each crescent.
contains
has
There
are
Access to each crescent
limited to one central entrance along the outer edge
each building.
edge
private
Two
corridor,
which runs along
at the ground level.
lobbies
overlooks
of
Within each, the central lobby leads into a
glass-enclosed
inner
a
of
the
the
crescent's
This corridor links
respective
the crescent's formal,
vertical
landscaped
blocks
inner
the
and
court.
of the crescents are designed to have inner courts that
are virtually filled by large reflecting pools.
The
design
implications
project.
layouts
concept
for
The
in
advantage
the
of
of
the
positive
construction and
interior
most
has both
plan
the
thereby
view of Manhattan
negative
marketing
facilitates
units,
and
from
of
the
floor-through
taking
the
maximum
site.
In
contrast, a double-loaded corridor plan would have forfeited
the
view
from
half
the
units.
A
drawback
considerable added expense of multiple cores,
the
is
compounded by
fact that each core will contain two elevators.
Group
studies
directed by
ARCORP's
the
marketing
Focus
consultant
indicated that buyers expect dual elevator service in luxury
buildings.
normally
A convential building containing this many units
would
have
about
bank. 4
49
six
elevators
in
a
central
Construction Implications:
The
related
Vertical
to
integrally
the proposed Forest City Dillon (FCD)
method:
an
utilizing
precast components as forms
concrete
is
Articulation Module plan
on-site
which
erection
and
assembly
for
connection. 5
completes the structural
the service core,
procedure
poured-in-place
four major subsystems of the FCD method are:
components,
building
The
the structural
the elevator component,
the
non-load bearing wall package.
The FCD method eliminates the problems of
conventional
precast
"jointing"
bearing
walls are cast in steel beds which utilize
edge
forms,
by
using
site-poured
concrete.
The
special
allowing the placement of rectangular mandrels
at regular intervals along the length of the walls.
During
the curing process, the mandrels are removed, creating voids
which run the full height of the wall.
are
On-site,
the voids
reinforced with steel rods and filled with concrete
form
eight
the
feet
structural joint.
wide
FCD floor slabs
and up to 28 feet
thickness of four or eight inches.
four-inch
form
are
usually
a
standard
at
The top surface of
slabs are smooth.
The top surfaces of the
These slabs create the
edge
slabs,
thus
for pouring the topping on the four-inch
eliminating the necessity for on-site form work.
the
floor
the
slabs are roughened and are topped with four more
inches of concrete during erection.
eight-inch
long,
to
floor at the exterior of a living unit,
an
slab or spandrel panel is utilized.
This
50
To finish
eight-inch
component
can serve as both floor and facade and is the edge form
the
site-poured
concrete,
integrating
the
unit's
for
floor
slabs.6
The
service
delivery.7
This
pre-stressed
core components are 90%
floor
system.
the
thick
buildings
service
cores
in sequence with the
are
building's
The core is composed of various combinations
kitchens
and bathrooms,
specifications.
electrical
It
in
is
completed
plumbing
accordance
The
service
of
according to the building's design
connections,
equipment,
codes.
Thus,
floor-by-floor,
erection.
before
core is fabricated on an eight-inch
floor slab that becomes part of the
structural
installed
finished
in-plant
and
other
with applicable
core
contains
with
specified
local
all
all
building
fixtures
and
appliances and reportedly can range in finish from budget to
luxury class. 8
Other building materials are packed with the
service
such as the curtain wall,
core,
interior doors,
and drywall,
needed.
As
walls,
so that when the service core
is lifted into place at the building site,
materials
partition
a result,
workmen have the
interior areas
are
60%
completed at "topping-out". 9
The
by-floor,
same
FCD elevator shaft components are installed floorin
sequence with the building's erection in
way as the other structural components.
has all necessary openings,
doors
and
elevator
equipment
is
that
immediately.
The
soon
51
module
inserts and block-outs so
can be
operational
Each
the
installed
after
topping-out,
which
further expedites finishing work inside the building.
FCD
the
Since
locates
method
stages of construction in the factory,
utility and finishing work,
interior
it can save months of
As erection of the
on-site labor productivity is increased.
proceeds
at
the rate of two floors
at work on the floors
are
tradesmen
and
wiring,
below,
every
week,
making
field
completing floor-to-floor
connections in the service cores,
plumbing
and
time-consuming delays are avoided
when they need them,
building
need
they
on-site workers have the materials
that
and
such as forming
Also, because the FCD method is designed to
erection time.
ensure
labor-intensive
most
and installing
walls
interior
and
Moreover, after topping-out the building is just
drywall.10
three to four months from occupancy, as compared to seven or
The FCD method
more months with conventional construction.
is
estimated to reduce conventional construction time for a
multi-story
versus
interest paid on an
the
months
This enables much earlier occupancy
fifteen).
reduces
(eight
apartment or hotel by up to 50%
outstanding
and
construction
loan.
The
major advantage of this method for ARCORP's Palace
is
development
activity
on-site,
earlier-phase
subsequent
that it will reduce construction
residents
phases.
mitigating the
thereby
caused
by
the
disturbance
construction
conventional
and
of
of
This method also is considered by some
to be better adapted to construction of a circular
than
time
construction.
52
There
are
building
potential
disadvantages associated with this method,
however.
Trade
unions are generally resentful of prefabricated construction
methods that displace their members.
the
Yet the cooperation of
unions is essential to completing the on-site
and assembly processes in the FCD method.
erection
ARCORP claims to
have excellent union relations in New Jersey through A-P-A's
dealings with the Teamsters.
However, it remains to be seen
whether there is solidarity between the Teamsters, with whom
A-P-A has strong ties,
and the various construction unions.
Secondly,
a
there
is
prevailing
market
bias
against
prefabricated residential construction in the United States.
ARCORP
will
marketing
have to overcome
and
this
through
sophisticated
high-level quality-control of the
component
manufacturing process.
Marketing Implications:
This building method affords less marketing flexibility
than
conventional
vertical
block
methods.
The
floor
plans
within
are interdependent on the locations of
bearing walls and the wet cores.
the
As such, successive floor
plans within a block may vary only slightly.
For instance,
if ARCORP wanted to include some studio apartments within
block,
a
a
it would virtually have to have a studio in the same
location on every floor, given the floor plan constraints. 1 2
Bofill
has designed sixteen different floor plans or
arrangements".13
arrangement,
successive
Each vertical module may contain one
that
floors.
"core
core
is the same basic floor plan repeated on
Each of the sixteen core
53
arrangements
can accommodate three to five apartments per floor.
The
logistics
of
this
method
project's marketing flexibility.
economies of time,
placed
with
the
design stage.
time.)
wet
To achieve the
the
projected
the "order" for wet core modules must be
manufacturer early in
the
planning
and
(Forest City Dillon requires five months lead
modules is dependent upon the specified unit
the
types
modifying
and locations of units).
The
once
production of the wet cores is
Once production is underway,
specifications
bathroom/kitchen)
core
of
are
underway.
a revision of the original wet
(e.g.
would
production process.
mix
costs
the unit mix or layout of a particular
prohibitive
core
limit
The schedule of production and installation of the
core
(i.e.
further
bathroom/bathroom
disrupt
the
or
manufacturer's
Not only would this cause a delay, the
manufacturer would most likely impose a penalty fee as well.
The developer,
designated
therefore, essentially must commit to a
unit mix in the planning and design
double-loaded
construction,
corridor
interior
buildings
with
phase.
In
conventional
partitions may be altered to modify
layouts once construction is underway for a relatively minor
cost premium.
Thus,
a developer may respond more flexibly
to the preferences of the market by increasing the number of
more
popular
units.
As
all
vertical
structure are constructed simultaneously,
revision
of
the
unit
mix
of
the
modules
within
not sequentially,
entire
building
constrained by the same design and construction factors.
54
a
is
Phasing Implications:
According
development
central
arch,
to
will
arch,
and
consist
of
phase
both
one
of
inner
the
the
through
parking spaces located behind
the
the
inner
ARCORP believes it must develop what amounts to
784 units in the first phase for several reasons.
feels
Palace
crescents,
the retail structure extending
1,448
crescents.
ARCORP,
First, it
that it is necessary to establish a critical mass
on
the site, to create a vital environment to which people will
be
attracted
support
the
to live and to generate sufficient demand
retail and ferry
reasons are interrelated.
a
retail
service
immediately
to
operations.
The
to
remaining
Because of the site's isolation,
infrastructure
must
support the development,
be
thus
available
the
retail
structure and central arch must be constructed in phase one.
Given the symmetrical design of the complex, construction of
only
one inner crescent and the central arch
awkward and incomplete.
both
would
appear
Further, for technological reasons,
inner crescents should be in place before the
central
arch and retail structure between them are erected.
For
practical as well as marketing
north-south
road
considerations,
should be developed through the
site
a
in
phase one, from the River Road entrance to the Palace to the
junction with the Lincoln Tunnel approach road.
If the on-
site road was to halt at the southern crescent,
there would
likely
be traffic bottlenecks at the single accessway
River Road.
onto
However, the extension of this road through the
55
site
will require a threshold commitment to a site plan for
the rest of the 367-acre property.
The need to lay the road in phase one, coupled with the
site
plan
utilities
of
the complex,
requires
that
the
for all 2,000 units be installed beneath the road
in the first phase.
$5,000
in effect
per unit,
investment
utilities.
At an estimated cost for utilities
this will require an additional
of
up-front
of approximately $6 million for the future-phase
Another
implication
of
the
site's
physical
constraints and the site plan relates to the piles that must
be driven
drive
to support the crescents.
the
It seems sensible
piles for all four crescents upfront,
to
to
avoid
disturbing either the existing structures or their residents
during construction of the later phases.
Overall,
the
most
important
consideration
in
the
design of any large-scale development should be flexibility.
If
the initial product is unsuccessful in the
marketplace,
the developer should be able to modify the build-out of
project
so that he may still realize the value of the
the
land
and up-front site improvements. Bofill's master plan affords
little
flexibility.
Moreover,
the
plan cannot be
appreciated until all four crescents are built,
design
is
prospective
symmetrical
buyers
initial crescents,
on
either
development
side
and
so
reject
the
tightly
because the
integrated.
architecture
fully
of
the
If
two
ARCORP's options as to what it may build
of
program
them
and
are
limited.
the site's
56
Further,
physical
the
constraints
prohibit
amount
ARCORP from limiting its up-front investment to
commensurate
with the return to be realized in
first phase.
57
an
the
CHAPTER IV
FINANCIAL FEASIBILITY ANALYSIS
A
pro
forma computer model of the Palace project
constructed
to
analyze
the
costs
and
return
for
was
each
development phase over time.
The model is based on a set of
assumptions
principal
covering
three
variables:
costs,
absorption
rate,
before-tax
feasibility analysis is to investigate means
sales price.
The main purpose
of
this
of
structuring conventional construction loan financing for the
project.
On
the
basis
of
three
basic
criteria,
the
project's feasibility is evaluated from the perspective of a
construction lender:
First, is the loan amount commensurate
with its source of repayment?
and risk associated with
Second,
what is the value of
the collateral?
Third,
does the
developer have a strong incentive to see the project through
to
a
terms
successful completion?
on
The impact of possible
the developer's return from the project
loan
is
then
is an introductory pro forma analysis based
upon
assessed.
This
preliminary estimates of the development costs and a phasing
schedule
model
the
provided
by ARCORP's
staff.
Nevertheless,
displays the influence of several key
Palace
development
the
attributes
on the financial dynamics
of
of
the
project.
Site-Driven Decisions:
First,
difficult
because this is a large-scale development on
site,
a
the requisite infrastructure investment is
58
great.
Not
only
are
roads
and
utilities
required,
substantial parking and retail facilities are needed as well
to service the residents, given the site's isolation and the
high
density of the
proposed
development.
Further,
the
physical constraints make it necessary to front-load most of
the
infrastructure costs.
For instance,
isolation and enhance the condominiums'
retail
to alleviate the
marketability,
the
infrastructure has to be provided at the outset.
In
view of the site's restricted access, more residents are apt
to want to own cars there.
calls
for
phases.
an
abundance
Thus,
the development
of parking spaces
in
program
the
early
In addition, site improvements are front-loaded for
reasons that were discussed in the previous chapter.
Owing
there
to the site's configuration and soil conditions,
is
However,
parking
a cost premium to develop parking
the
projected
structure
does
at
the
income-producing capacity
not match
its
site.
of
development
the
cost.
Moreover, the income-producing potential of the retail space
is
weak
since
its market is effectively
limited
to
the
Palace residents. Consequently, permanent mortgage loans for
the parking and retail cannot be expected to repay a notable
portion
The
of
the overall construction loan for the
major financial implication of these
that
the
relative
costs
development
costs
are
be
incurred up-front,
circumstances
disproportionately
to the returns in the early
must
project.
phases.
yet
the
is
high
Substantial
corresponding
revenues will come from condominium sales in later phases.
59
The condominium sales are the project's primary
of
return and repayment for a construction loan.
the
sales proceeds in phase one are not
the
up-front
development costs.
Thus,
source
However,
commensurate
with
ARCORP will
most
likely not be able to obtain construction loan financing
cover
100%
of the Palace development costs in
simply
by
Palace
parcel.
protect
mortgaging
the forty acres which
In any phased development,
itself,
(the
phase
one,
comprise
the
a lender
that is ensure its repayment,
project halt after the first phase.
mortgage)
is
must
should
A lender's
the
collateral
principally security in the
project does not succeed as projected,
to
event
the
not a primary source
of repayment.
Therefore, in this case, the lender's source
of
(the
repayment
projected
condominium
sales)
takes
precedence to its loan's collateral (the 40-acre parcel)
a
matter
of credit
criteria.
Accordingly,
ARCORP
will
probably have to infuse a sizable amount of equity into
project up-front,
in
phase
as
the
so that the amount of debt on the project
one remains in line with the lender's
source
of
repayment.
Design Implications:
The
second
important
terms
key
financial
attribute
of the
implications is its
of the concept and scale.
Palace
which
design,
A large number
will be brought on the market at once in phase one,
ARCORP
inner
felt
that the design would appear awkward
crescents
and
the central arch were
60
not
has
both
of
in
units
because
if
both
developed
together.
There are also technological benefits involved in
completing
both crescents before building the central
and retail structure between them.
risk,
however,
of
arch
This poses the financial
having to carry a lot of unsold
units,
which can erode the project's profit margin.
The resulting
pressure
the
costs,
at
to
sell units,
Besides,
the large stock of units
in
the
phase together with the site's pioneer location
likely
make
presales.
the
carrying
will probably restrain the prices achieved initially
the Palace.
first
in order to reduce
it difficult to achieve a high
Also,
crescent
lesser
because
structures,
degree
in
inconvenienced
will
percentage
of
of the immediate juxtaposition of
buyers in phase one
phases two and three) will
(and
to
probably
by the ongoing construction of the
a
be
project.
As a result, buyers in earlier phases will expect attractive
(i.e.
lower)
which
will
prices to compensate for
further
the
restrain the initial
inconvenience,
prices
at
the
Palace.
These
site
and design attributes have led
make an interrelated marketing decision -units
in
phase one to establish a critical
strengthen
to
to develop enough
mass.
feels that a critical mass of 700 to 800 units is
to
ARCORP
the marketing campaign and to
ARCORP
necessary
mitigate
the
pioneer image of the development.
Market Absorption Issues:
This critical mass factor is another reason that ARCORP
intends
to bring both inner crescents on the market in
61
the
first phase,
market
but it raises an important issue:
absorption.
comprehensive
ARCORP has not commissioned a
Admittedly,
to
metropolitan
market.
formal,
market analysis to substantiate its projected
absorption rate and prices.
quantify
the rate of
the
New York
However,
it is no easy task
area
residential
ARCORP appears to be grounding its plans
on sweeping generalizations about the depth of the Manhattan
condominium
that
last
overall
market.
year,
in
For instance,
8,000
Manhattan
it considers the
condominium
units
an indicator that
were
its
fact
absorbed
project
can
capture 5% of that market, or 400 units per year.
Absorption
rate
projections
are
relative
concepts.
Their probability is a function of the total number of units
within the project (i.e. percentage of project's supply) and
the
as
total stock of units within the project's market
well
as
the development period
expected
to
be sustained.
area,
absorption
rates
over
Within a
are
which
specific
a function of
area,
they
are
geographic
the
range
of
product types offered, in terms of price, quality and image.
ARCORP's
sustain
marketing consultant projects that the Palace will
an absorption rate of 500 units per
four-to-five-year
development period.
year,
over
This projection
a
is
considered ambitious for two basic reasons.
First, this absorption assumption implies that if sales
begin
phase
as anticipated in June 1987,
one
construction
will
be
sold out
by
the entire 784 units in
the
time
is complete as expected in the fourth
62
phase-one
quarter
of 1988.
could
As noted above, it is questionable that the Palace
be substantially presold,
frontier
setting.
Granted
given its large scale
there
have
been
and
condominium
projects in Manhattan that were 100% presold during the
market
of
the
locations,
however,
surrounding
At
prospective
neighborhood
impression
site
early 1980's.
and
most
Manhattan
buyers
obtain
can
a
an image problem to overcome.
difficult
project
explore
fairly
of what living there would be like.
has
hot
the
vivid
The Palace
It will
be
for prospective buyers to envision the
more
completed
project in phase one and more likely that they will want
experience walking through and around it,
to
before committing
to purchase a unit.
The
second
delusive,
is
reason
that
this absorption
projection
the consultant has likened
development to Battery Park City to support the
Because
annual
the
Battery Park market may have
absorption
sufficient
indication
Battery
Park
respect
to
larger
rates
the Palace can
City and the Palace are not
absorption.
stock
of
the
Palace
projection.
achieved
of 500 units per year
that
seems
do
recent
is
not
the
same.
comparable
with
Battery Park City consists
units and a broader
variety
of
of
For
in the second phase of Battery Park's residential
development program,
projects
a
project
types, in terms of unit size, price, image, and tenure.
instance,
a
that
developers are building ten respective
together contain approximately 2,200
units.
The establishment of a mixed residential community is one of
63
the goals of the Battery Park City Authority.
in
contrast,
essentially
will
consist
The
of 2,000 units
the same in terms of image,
Palace,
that
are
all
price and quality.
It should also be noted that Battery Park City's location in
lower
Manhattan
is not as isolated as that of
the
Palace
site.
The large scale and pioneer setting of the Palace
have
strong
the
implications (in the short term at least)
prices that can be achieved there.
consultant
selling
is
at
escalate
also
ARCORP's
confident that the Palace
a price of $225 per square
units
foot,
marketing
can
begin
which
would
4% per annum over the development period.
condominium
market
municipalities,
composed of
however,
the
there
for
In the
New-Jersey-waterfront
has
been
an
apparent
resistance to hitting the benchmark price of $200 per square
foot. 1
The
region
is
number
of projects have recently achieved prices
strongest market in the New
Hoboken.
Even there,
$200 per square foot.
be
Jersey
waterfront
only a relatively
small
averaging
These individual projects happen
to
much smaller than the planned 2,000-unit Palace project.
Two
projects
Trust
which achieved these
and Skyline,
contained
only
prices,
(both of which were
102
and
93
new
units,
the
Jefferson
construction)
respectively. 2
Intuitively, it is easier to sell out a smaller project at a
given price level.
100
units
suggest
at
$200
Thus, the fact that the market absorbed
per square foot
that eight times that number,
64
does
not
adequately
concentrated
within
one
project,
can
be
absorbed at
comparable market conditions.
the
same
price
under
(Note that ARCORP proposes to
build 784 units in the first phase of the Palace.)
The
Hoboken
market
poses direct competition
to
the
Palace at Port Imperial. Although the Palace will provide an
exclusive
which
as
ferry
service to Manhattan
for
its
no doubt will create a special ambience,
good
PATH.
residents,
Hoboken has
access to midtown and downtown Manhattan
Moreover,
relocating
to
close-knit
blocks,
Hoboken are attracted by
growing
restaurants.
the
the droves of Manhattan commuters who are
community
and
via
The
environment,
assortment
the
small
renovated
of
trendy
appealing charm of an
city's
brownstone
shops
old,
and
established
community is something which the Palace is not likely to
be
able to duplicate immediately.
Another
attribute
of
the
Palace
development
that
strongly influences its financial dynamics is the market
which it will compete.
along
Both the supply of residential units
the New Jersey waterfront and trends in the Manhattan
condominium
Palace.
supply
market
Not
only
will impact the prices attained at
is ARCORP proposing to
bring
of
units
on-line,
waterfront
sites
are planning to develop an
amount as well.
are
in
currently
market.
regarding
other
Moreover,
owners
of
New
a
the
large
Jersey
unprecedented
New York residential developers
overbuilding in
the
Manhattan
condominium
Under these competitive market conditions, optimism
the
prices which can be achieved at
65
the
Palace
should be kept in check.
Signs
already
of an oncoming glut in the Manhattan market
apparent.
apartments
More
than
25,000
new
are
condominium
are flooding onto the Manhattan market over
next
eighteen months,
been
enough
speculative overdevelopment that has
to push "condo" prices down by around
cent last year,
condo-market
the
10
per
and take another 10 to 15 per cent off
the
average
this
year.3
"Standard"
Manhattan
condominium projects are currently achieving average
prices
of about $325 per square foot, as reported in an April study
prepared
by a team of Harvard Business School students
for
ARCORP. It is the "standard" market against which the Palace
will
most
likely
Manhattanites
to
compete
in
New Jersey.
its
attempt
Prices within
to
attract
this
market
would fall below $300 per square foot, if indeed prices fall
10
to
price
15 per cent as a result of the
decline
oversupply.
Such
in the Manhattan market does not augur
a
well
for a price increase in the New Jersey market.
Despite tell-tale signs that the Manhattan
market
is softening,
sites
are
many owners of New Jersey
proceeding
development plans.
with
their
up-market
residential
waterfront
condominium
Three major projects which are
already
underway should compete effectively with the Palace,
basis
Harbor,
of
views,
to
the
luxury and/or access to
north
of
the
Palace
Manhattan.
site,
is
on the
Roc
under
construction and will contain approximately 550 condominiums
in three 16-story towers, along with 17 four-story townhouse
66
buildings.
Newport City,
to the south in Jersey City is a
large-scale
mixed-use
residential)
development being undertaken jointly by
major
(office,
developers.
Samuel
Lefrak
hotel,
is
retail,
and
three
developing
the
residential
portion
apartments,
1,500 of which are to be developed in the first
which
will consist
of
9,000
rental
phase which began in June 1986.
Perhaps
from
Port
the
Palace's strongest competition will
Liberte at Caven Point in Jersey City
being developed by the Spoerry Group,
of
resort specialists.
condominiums
come
which
is
a European consortium
The project will consist of
1,700
and townhouses built in village settings along
winding canals, which will enable buyers to dock small boats
in
the
their backyards.
The site offers a remarkable view
Statue of Liberty and lower
Manhattan.
site
abuts on to Liberty State Park,
(800
acres)
urban park.
Up-river
New Jersey's
refurbished,
and
the
biggest
A special bus service is to
from the site to the Exchange Place PATH station,
of
run
now being
a ferry service reportedly is to
operate
between the site and Battery Park in lower Manhattan. 4
The
major
difference
between
the
Palace
and
Port
Liberte lies in the architectural approach of each. Although
the
canal
European
network
cities
architectural
American.
Barrier,
at Port Liberte will
such
flavor
According
who
as
Venice
evoke
and
images
Amsterdam,
of the village is
to
to
specialist
Swiss
resort
be
the
definitely
is participating in the design effort,
67
of
Pierre
"Port
Liberte
will look as though it had grown up here
hand,
on
Bofill's Palace design,
years".5
200
past
has a distinctly foreign flavor.
over
the
other
the
The design may not
have broad appeal owing to its uniqueness, which seems to be
a gamble that ARCORP is willing to take. Generally corporate
tenants,
seeking
receptive
in
symbols
of identity and power, are
to novel architecture.
contrast,
more
Residential architecture,
generally involves decision-making on a
personal level.
more
Buyers are less inclined to invest in
inhabit
a
broader
local environment.6
residence
whose style is incongruous
Overall,
with
ARCORP will have
launch an intensive marketing campaign to carve a niche
the
Palace in the competitive,
albeit diverse,
and
the
to
for
waterfront
market.
Ferry Connection:
The
fourth major attribute of the Palace
its financial feasibility (i.e.
and
market
attributes)
that
drives
in addition to site, design
is the
proposed
ferry
service.
Without the access to Manhattan which the ferry facilitates,
the value of ARCORP's property and the proposed condominiums
would be significantly diminished.
not,
The ferry operation was
however, incorporated in the pro forma analysis of the
Palace.
other
retail)
It is seperable,
operating
components
are not.
"attribute"
investment,
is
a
as a business, in a way that the
of
the
Palace
(parking
The basic financial implication of
this
a
mandatory
service that has to be provided.
The ferry
that
it
is
68
essentially
and
operation
is the key to the value that ARCORP
has
created
for this property.
Model Assumptions
The
assumptions underlying the model are presented
Exhibits
detail
are
lA
and B,
while some are also outlined
in Exhibit 1C.
The development budget and
presented in Exhibit 7.
development
costs,
in
more
schedule
Key assumptions regarding
schedule,
absorption rate,
in
and
the
sales
prices are discussed below.
Development Costs:
Hard
costs to construct the residential buildings
projected
costs
to
be $95 per gross square foot.
are estimated at $12,000 per space.
construct the one-story retail structure
are
Parking
Hard
hard
costs
to
(which accounts for
less than 2% of the gross buildable area of the project) are
projected
at
allowance.
over
$70 per gross square foot,
All
hard costs are escalated at 4%
the development period.
improvement
without a
per
The budgeted front-end
costs total approximately $16.3
than 5% of the overall project hard costs.
front-end
tenant
million,
annum
site
less
The other major
expense is that of the sales offices,
which
are
estimated to cost $4.5 million and $2 million, respectively,
at
the
office
for
the
site
and at the New York ferry
pier.
at the site will contain model units.
proposed
marina
is
sketchy
at
The
As the
present,
sales
plan
this
component of the project was not incorporated in the model.
Total project soft costs
69
(including the developer's fee
which
is
deferred
approximately
$103.5
excluding land.
as
a
and
paid out
million,
of
26%
gross
of
sales)
total
hard
costs
total
(Note that the sales offices are
hard cost in Exhibits 6 and 7.
This is
presented
actually
a
marketing cost and as such, could be regarded as a soft-cost
item.
28%
In
that case,
soft costs would total $110 million,
of total hard costs excluding land.)
soft costs may be low.
costs
in
As
This estimate
a general rule of
thumb,
of
soft
a condominium project usually equal 35 to 40
per
cent of total hard costs and land acquisition.
The
most significant soft cost item,
after
financing
and marketing costs, is the common area fees and real estate
taxes on unsold condominium units.
yet
thoroughly
implications
addressed
both
for
this
the
Although ARCORP has not
item,
development
it
has
budget
important
and
the
marketability of the units, vis-a-vis competitors' projects.
ARCORP proposes to privatize most municipal services for its
development,
on-site
such
security
as road construction and maintenance and
and
emergency
services.
This
factor,
combined with the high level of maintenance which the lavish
landscaping will require, is likely to result in substantial
common area fees.
of
the
ARCORP is seeking to obtain an abatement
prohibitively high West New York tax rate
for
its
development, on the grounds that the development will not be
dependent upon the Town for the provision of most
services.
Nevertheless,
abatement
would
is unknown whether or not
it
represent
70
municipal
a
dollar-for-dollar
an
tradeoff
between lower taxes and higher common area fees.
It may be
more
and
reasonable
estate
taxes
to assume that common area fees
at
the
Palace
will
be
high
real
relative
to
comparable condominium developments in the area.
A preliminary estimate by ARCORP's marketing consultant
of
$4.00 per square foot for the annual common area fee
the
Palace
is
individual-unit
based on the
electricity
high-rise complex,
and
scope
comparable
of
rate
charged
charges)
at
the Galaxy Towers.
services
(inclusive
the
the
of
neighboring
However,
provided at
at
the level
Galaxy
to those envisioned for the Palace.
are
not
The Galaxy
has virtually no landscaped grounds or private roads. Nor is
the
Galaxy property as extensive as that which
security service will have to patrol.
of
unit electricity charges,
the
Palace
Despite the inclusion
which raise the Galaxy
fees,
the Palace common area fees are bound to be higher.
It is difficult to select a condominium development
serve
rather
as
a
direct comparison for the
unique
setting
and
House
project
at
Liberty
Manhattan
does
circumstances.
Battery
of
Park
given
its
However,
the
City
provide valuable insight into the
maintaining such a development.
jurisdiction
Palace,
the
to
in
lower
cost
of
Liberty House is within the
Battery Park
City
Authority,
which
provides municipal facilities such as sewers and water lines
and which owns and maintains the roads,
within
Battery
Park
City.
esplanade and parks
Consequently,
Liberty
House
residents must contribute toward the cost of maintaining the
71
civic
facilities as part of their condominium
fees.
maintenance
According to the Liberty House Condominium
Plan,
Offering
the annual maintenance fee is approximately $5.50 per
square foot. 7
Based
assumption
Further,
tax
on
these
used
in
two
cases,
the
common
the model is $4.50
per
area
square
fee
foot.
under the assumption that ARCORP will obtain a 50%
abatement,
the annual tax per square foot would be
an
additional $5.45. (This is based on an initial average sales
price
projection
common
area
of
$241,000 per unit
in
fees and real estate taxes
1987.)
are
Thus,
projected
to
begin at $12,000 per unit ($1,000 per month) and escalate 2%
per
annum.
These
assumptions
are
more
in
ARCORP's.
They
Maintenance
costs at the Palace may be closer to
Liberty House.
fees
would
be
are
optimistic
line
assumptions,
with
however.
those
at
At $5.50 per square foot, annual common area
about $1,200 per
unit
higher.
Likewise,
ARCORP may not obtain a tax abatement.
Development Schedule:
The model is based on a quarterly development schedule.
This is considered more appropriate than an annual
for
a
condominium
facilitates
expense
soft-cost
a
more
development of this
type,
accurate projection
and carrying cost of unsold units.
of
schedule
because
the
interest
Both of
items can be critical to maintaining an
it
these
adequate
profit margin in a condominium development.
In the model,
it is assumed that pre-development
72
soft
costs
such
as
legal
design,
and
marketing
expenses,
associated with phase one, will be incurred beginning in the
1986 third quarter.
Development of two sales offices in New
Jersey and New York,
then
as well.
respectively, is scheduled to commence
These offices are to open and sales are
begin
by
begin
the next quarter (1986/4),
June 1987.
Site improvement work is assumed
while the
(See
Exhibit
ambitious
when
the
6.)
April
Granted this timetable
approval process
to
groundbreaking
for the first crescent is scheduled to occur in
(1987/2).
to
ARCORP
has
1987
seems
yet
to
year
is
undergo is considered.
Absorption Rate:
A
constant
absorption rate of 250 units per
assumed in the model.
51%
This results in the first phase being
sold-out by the completion of both inner crescents
the central arch.
drives
In the model,
the construction schedule.
the absorption assumption
In view of the negative
financial impact of carrying unsold units,
phases
construction
two through four is scheduled to be complete by
time each phase is between 38 and 45 per cent presold.
Table 2.)
rate
year
Again,
development
of
period.
owing
the
(See
over what amounts to an eightIt
should
be
the crescents and towers is
take twelve months,
proposed
of
this assumes a constant annual absorption
of 250 units per year,
construction
and
noted
that
projected
to
despite the alleged time savings of the
Forest City Dillon construction process.
to design features which are not usually
73
This is
present
in
Port Imperial
West New York, New Jersey
Table 2
CONSTRUCTION PHASING
Phase
% Sold Upon
# Units
Construction Dates
Start
Finish
Completion of:
Ind. Bldg. Phase
ONE:
N Mid-C
S Mid-C
Ctr Arch
784
364
364
56
Apr.
Sept.
Feb.
'87
'87
'88
Mar.
Aug.
Oct.
'88
'88
'88
TWO:
474
Apr.
'90
Mar.
'91
38%
THREE:
474
Apr.
'92
Mar.
'93
45%
FOUR:
270
Oct. '93
Sept. '94
43%
74
58%
46%
51%
27%
43%
51%
the typical
high-rise apartment building.
Price:
Despite
the
high
standards
of
construction
and
amenities, the ferry service, waterfront location, and view,
prices
at
the Palace are likely to be constrained
following conditions:
large
scale
absorption
and
rates;
competition
Moreover,
from
the
the site's isolation;
consequent
pressure
the soft Manhattan
other
New
potentially
Jersey
to
achieve
condominium
waterfront
market;
projects.
real
effectively
a competitive tradeoff between salesprices
conditions,
it
square foot mark,
campaign.
The
In view of
and
these
is improbable that the Palace will set
records for the New Jersey market,
per
high
high common area fees and
living expenses vis-a-vis other projects.
$200
the
the project's
estate taxes at the Palace may restrain prices,
maintaining
by
new
at prices well above the
from the outset of
its
sales
assumption in the model is that units
will
begin selling in 1987 at an average price of $200 per square
foot,
which
starting
relatively
price will escalate 6% per annum.
While
the
that
the
generous escalation factor will account for
the
price
is
conservative,
the belief is
units' appreciation, as the site establishes an identity and
the design is built-out.
Evaluating Feasibility: Construction Lender's Perspective
The
mixed-use
Palace is essentially a condominium project (not a
project)
in
which
75
the
retail
and
parking
components
are essential amenities.
model
project
the
separate
in
is analyzed as a whole rather
operating
allocated
Accordingly,
parts;
therefore,
soft
the
than
costs
over the entire project instead of to
as
are
individual
uses
such as condominium,
also
be noted that in a large-scale development such as the
Palace,
a
lender
parking and retail.
It
would issue loan commitments
should
in
phases
corresponding to the project's build-out, rather than commit
up-front to lend an amount for the entire project.
and
The major financing implication of the Palace's
design
program
easily
divisible
is
that
the project's uses
into separate parts,
individual
lender's
mortgage
loans.
principal
condominium
sales.
are
which can be financed
Therefore,
source
not
of
Arranging
a
repayment
permanent
portions of the construction loan,
with
construction
will
loans
the
be
to
repay
by mortgaging either the
parking structure or the retail space, may be infeasible (in
the
short
term
at least) for
several
reasons
that
are
a lender's source of repayment
and
discussed below.
In
this
collateral
section,
are
assessed
with
respect
to
the
development.
Also,
margins (i.e.
net sales proceeds less total costs) in
the
individual
and cumulative
Palace
gross
each
development
phase are analyzed on an accounting and a cash-
flow basis.
On the former basis, the up-front sitework and
sales-office costs are allocated to each phase according
its
pro rata share of total units.
76
On a cash-flow
to
basis,
ARCORP's
total
account
on
investment
in the project
a quarterly basis,
is
taken
to identify the
into
number
of
units that ARCORP would have to sell in order to breakeven.
Source of Repayment:
In project finance,
the loan amount is typically based
on the economics of the individual project.
Thus, a lender
generally will not lend an amount in excess of that which it
can reasonably expect to be repaid from the project. This is
the
case whether the collateral's value is sufficient (on a
loan-to-value basis) to support a larger loan or not.
respect to phase one of the Palace,
not
make
a
loan
in excess
of
With
a lender would probably
the
amount
which
could
reasonably be repaid from the sale of the condominiums built
in
that phase.
one,
For if the project was to halt after phase
the only source of repayment for the outstanding
would
be
the
property.
foreclosure
on and sale
of
the
loan
mortgaged
(However, if Arthur Imperatore was personally to
guarantee
repayment
of the excess loan
amount,
a
lender
would likely increase its construction loan.)
As stated above,
the
first phase,
financing
serve
for ARCORP to obtain
permanent
mortgage
for the parking structure and the retail space to
as
additional
construction
loan.
sources
Income
of
repayment
for
from the parking structure
entirely dependent on condominium sales.
almost
sale
it will be difficult, particularly in
of
parking
all
784 units in phase
one,
the
daily
occupancy rate is projected to be 62%.
77
Upon
the
is
the
average
Under
the
model's
rents,
assumptions
regarding monthly
daily
parking
the annual net operating income from parking at that
point would be $467,300.
of
and
Under assumed permanent loan terms
10% interest only (no amortization) and 1.2 debt service
coverage,
the
support
is
maximum debt that this level of
approximately
insignificant
$3.9
million.
income
This
amount when one considers that the
can
is
an
projected
cost to build the 1,448 parking spaces in phase one is $17.8
million,
exclusive of land and soft costs.
(Note that the
projected net operating income from parking upon the sale of
all
2,002
units
could
support a maximum
loan
of
$17.5
million. Yet the complete parking structure containing 2,902
spaces is estimated to cost $38 million,
exclusive of
land
permanent
loan
and soft costs.)
Even
commitment
phase,
if
ARCORP
of
$3.9
the
was
to
obtain
million for the parking in
commitment
would not be viewed
reliable by a construction lender.
maximum
that
is
the
utilized
calls
in
is
dependent
of
a
the
phases
is
because of the physical integration of
Also,
for initial excess parking
subsequent phases.
later-phase units,
completely
Further, it is questionable whether or
sections within the structure.
program
first
The amount represents
mortgaging of the parking structure in
legally practicable,
the
as
the
contingent upon the sale of 100%
units in phase one.
not
a
the
development
capacity
to
be
Since the marketablity
of
and to a lesser degree the retail space,
upon the provision
78
of
adequate
parking,
a
lender
its
may be reluctant to release all of the parking
lien on the property in the earlier phases.
A
from
lender
may wish to retain control of a substantial parking reserve,
in
the event it must foreclose during the construction of a
subsequent phase.
phase
four
(For instance, the condominiums built in
will depend on parking
developed
in
previous
phases.)
In all likelihood,
arranging
well,
financing
ARCORP will encounter difficulty in
for the retail space at the Palace
for two basic reasons.
as
First, it will not be easy to
attract retail tenants to this site, as the market for these
establishments
residents.
will
This
effectively be limited to
retail
space
is unlikely
the
to
Palace
become
a
destination shopping area; for one thing, it is too small. A
retail
center without a major anchor typically contains
least 65,000 rentable square feet.8
households
at
In the first phase, 784
are unlikely to generate an adequate
demand
to
sustain
approximately 40,000 rentable square feet of retail
space.
Yet,
in
phase
retail
it is essential to marketing the condominiums
one that the development
"infrastructure"
from
the
probable that to induce retailers to
contain
onset.
"
free
ARCORP
gross
terms that provide substantial
square
of which it will
79
it
is
ARCORP
concessions,
to own and manage the retail
feet
Thus,
five-year) leases,
rent for the initial two to three years.
intends
convenience
set-up shop",
will have to enter into short-term (i.e.
under
a
operate
perhaps
(Note
space,
as
a
that
2,000
ferry
terminal.)
Such
leases
mortgage
loan
generate
sufficient
on
will
not be able
their merits alone,
as
to
support
they
a
will
not
in
the
retail is interwoven with
the
income to cover debt
service
initial years.
Secondly,
residential
areas
buildings,
complex
because
the
and also
scattered
throughout
several
the mortgaging of it undoubtedly will raise some
legal
issues.
As designed,
ARCORP will own
the
retail areas under the condominium form of ownership, in the
same
manner
residential
as
that
units.
of
the
respective
owners
restricted
its
by
association.
small
handling
the
the
A lender may be reluctant to accept
mortgage on condominium retail space since,
foreclosure,
of
a
in the event of
of
the
property
authority of
the
condominium
might
be
owners'
More importantly though, given the relatively
amount of retail space at the Palace,
it may not
be
worth a lender's time to deal with the legal complexities.
Collateral:
Based solely on the value of the collateral,
assumed
to
be
the forty acres that
comprise
which
the
is
Palace
development parcel, the maximum construction loan amount for
phase
one
determined
would be about $184 million.
in
two
parts corresponding to
This
amount
the
was
respective
values of the condominiums to be developed and the remaining
land as follows:
in
phase
against
one
The gross sell out of the 784 condominiums
is projected to
be
about
$206.2
million,
which a lender would loan a maximum of 75% or
80
$155
million.
The respective values of the retail space and the
parking
these
are
a
components.
produce
generated
by
As the retail space is not expected
to
any income initially,
collateral.
Arguably,
additional
the
function of the income to be
collateral.
capitalized
value
parking is $5.2 million,
the
it is not regarded as
parking should
be
valid
considered
At the time phase one is sold out,
of the net
operating
income
from
based on a 9% capitalization rate.
At a 75% loan-to-value ratio,
ARCORP could possibly
borrow
another $3.9 million against this.
The
value of the remaining land in the
constitutes the rest of the collateral,
value
is
developed
a
function
on it.
parcel,
which
is uncertain.
of the value of that
which
As a general rule of thumb in
Land
can
be
high-rise
condominium developments, a developer will pay on a per-unit
basis
up to 15% of the expected gross unit sales price
"prepared"
land
(i.e.
cleared,
graded,
with
roads
for
and
infrastructure).
ARCORP
per
feels that the Palace parcel is
worth
dwelling unit in its present raw state.
This is
given that the land is not currently developable.
be
a
reasonable estimate if the land
was
$40,000
high
It would
prepared.
The
projected average gross sales price in phase one is $218 per
square foot or about $262,700 per unit.
this unit price is approximately $40,000.
Fifteen per cent of
It is assumed in
the model, for reasons discussed below, that ARCORP will use
equity
to
finance most of the sitework before
81
the
first-
phase
construction loan closes in the 1987 second
Thus,
be
the
land
securing
the
construction
prepared essentially and as such,
per
unit.
The
the parcel,
units.
Because
considered
as zoned,
loans
loan
is valued at
remaining land is valued at
since
quarter.
will
$40,000
$48.7
million
may accommodate another 1,218
secured
by
undeveloped
land
are
riskier than construction loans that finance the
development of income-producing or for-sale improvements,
lender
generally will not loan more than 60% of the
appraised
value.
approximately
Consequently,
a
lender
a
land's
would
loan
$29 million against the remaining land in the
Palace parcel.
In
lending
this
particular situation,
the risk
involved
against the value of the Palace parcel's
land is considerable.
in
remaining
In effect, the bank would be lending
against ARCORP's development rights in the parcel (15
of which are underwater), not land per se.
acres
The "land" value
assigned to the 270 units to be developed in phase four, for
instance, actually relates to air rights, as these units are
intended to be built above the parking structure.
the
remaining land,
$40,000
or development rights,
Further,
is only
worth
per dwelling unit if phase one is successful,
that
is if the units sell out at the projected price level.
The design master plan of the Palace imposes additional
risk on the lender.
of
land
market rejects the architecture
If the
the two crescents built in phase one,
the value of
on either side and the air rights along the back
82
the
will
diminish significantly.
to
foreclose
pressed
In the worst case, if the bank had
during the first phase,
it
would
be
hard-
to realize any value from the remaining development
rights.
The
options would be limited as to what could
be
developed on either side of the crescents that would be both
compatible
with
Bofill's
design,
yet
different
enough
market.
Given
it is likely that a lender would either
reduce
architecturally so as to appeal more to the
this
its
risk,
loan
against the land or require additional
security,
such as personal guarantees of payment of any amount
loaned
in excess of a specified ceiling.
Equity Requirement:
Total development costs in phase one,
the
including all of
up-front costs of the sitework and sales
projected
amount
to
cannot
be about
be
$214.6
financed
million.
offices,
Obviously,
entirely with
debt
are
this
since
it
exceeds the maximum loan amount of $184 million,
determined
above
value.
all
strictly on the basis of the collateral's
likelihood,
a
lender would expect
ARCORP
to
In
infuse
equity into the project up-front to cover a majority of this
gap
for
the
confident
following
reason.
that its borrower,
A
lender
wants
to
the developer,
has a
strong
be
incentive from the beginning to see the project through to a
successful completion.
If
land
ARCORP's
and
relatively
its
equity in the Palace was limited
expenditures to date,
insignificant
its
in two respects.
83
to
the
would
be
(Note that
in
stake
1981,
ARCORP
roughly
paid
$21,000
ARCORP's
only $840,000 for
per
acre.
In
the
Palace
current
(1986)
parcel,
dollars,
land cost and other expenditures to date amount to
about $4.3 million,
lender's
as detailed in Table 4.)
perspective,
percentage
of
$490 million.
relatively
foreclose
represents
(See Exhibit 7.)
If
on
an
immaterial
the entire development's projected
small
portfolio.
this
First, from a
portion
this
the
ARCORP's
total
failed and the
40-acre parcel,
reputation might be hard.
the
investment
bank
blow
to
had
stake
development
in
the
However, ARCORP's financial loss
project.
This
is
from a lender's perspective.
inexperienced;
to
ARCORP's
would be relatively small if it never increased its
equity
of
Secondly, this parcel is a
of
project
cost
a
present
very
risky
The developer is
the proposed design and construction methods
are
unconventional;
and
the costs are disproportionately high relative
the location is virtually a
returns in the early phases.
frontier;
to
the
ARCORP will definitely have to
increase its equity stake in the project and assume a larger
share of the risk upfront.
In
the
model,
it is assumed that ARCORP
will
apply
equity to cover the costs in the first three quarters of the
development period (1986/3 through 1987/1).
mainly for sitework,
soft costs,
design,
These
the sales offices, and pre-development
associated specifically with phase one, such as
engineering,
costs
These costs are
legal fees, insurance, and marketing.
amount to about $28.1 million.
84
It is
further
assumed that the first-phase construction loan will close in
the
1987 second quarter,
first
crescent
noted
that in actuality,
its
loan
at the time construction
is scheduled to commence.
advances
on
(It
of
should
the
be
a lender would probably condition
the
achievement
of
a
specified
percentage of presales.)
Again
of
the primary credit issue of the lender's
repayment
repayment
comes
to
bear.
The
For the reasons
of
discussed
the availability of permanent mortgage financing for
the parking is dubious in the early phases.
unlikely
source
in all four phases of the Palace is the net sales
proceeds from the condominiums.
above,
principal
source
Moreover, it is
that permanent financing will ever be obtained for
the retail space.
In phase one, the net sales proceeds are
projected to be about $193 million.
lender did loan $184 million,
If in the first phase a
the maximum based strictly on
the collateral, it would not be repaid until ARCORP had sold
95% of the 784 units, at the projected average price of $218
per square foot.
of
the
loan.
This assumes that ARCORP would apply 100%
net sales proceeds from each sale to pay
down
A lender usually does not want to have to wait to be
repaid until practically all of the units have been sold
a condominium development.
be
the
repaid
Generally,
in
a lender expects to
by the time 80 to 85 per cent of the units
have
been sold at the projected prices.
To account for this constraint, the maximum loan amount
for
the
first
phase in the model was
85
reduced
from
$184
million
(the
maximum based strictly
value) to $166 million.
to
sell
loan,
the
collateral's
This implies that ARCORP will have
86% of the units built in phase one to
provided
that
it
applies
proceeds to reduce the loan balance.
is
on
able
to
100% of
the
repay
net
sales
(Note that if
obtain a $3.9 million permanent loan
the
ARCORP
for
the
parking to repay a portion of the construction loan in phase
one,
it will still have to sell more than 80% of the
units
to repay the loan.)
With
the reduced loan amount of $166
million,
would
have
cover
the balance of the projected costs in phase
to
infuse another $20.5 million of
ARCORP
equity
to
one.
In
view of the fact that ARCORP will have contributed the
land
and about $28.1 million in equity up-front, it is assumed in
the
model
project
the
that the first-phase loan will finance
costs beginning in the 1987 second
100%
quarter,
until
$166 million commitment has been fully advanced in
1988
based
fourth quarter.
on
completion
(See Exhibit 8.)
one condition,
and
the
This assumption is
that ARCORP issue
payment of interest and
of
guarantees
maintenance
of
(i.e.
common area fees and real estate taxes on the unsold units).
Once
the
loan has been fully
advanced,
ARCORP
would
be
responsible for paying the remaining costs of phase one.
By
that
point though,
mainly
million,
interest,
most
of
the remaining costs are projected to be
maintenance and marketing totaling
which ARCORP would be obligated
under the above payment guarantee.
86
$20.5
to
pay
(It is not atypical for
a
lender
to
development;
require such guarantees
in fact,
in
be
condominium
a lender would probably require them
throughout the four phases of the Palace.
to
any
It is also likely
more appropriate for A-P-A or Arthur
Imperatore
to
issue these guarantees.)
The
loan
commitments in phases two through four
determined with respect to the projected net sales
in
each phase (i.e.
manner
the source of repayment),
as that in phase one.
respective
three
proceeds
in the same
phases,
the
construction loan commitments cover 100% of
the
projected development costs.
repayment terms (i.e.
that
In these
were
The gradual relaxation of the
percentage of net unit sales proceeds
must be applied to repay loan) reflects the increasing
profitability of the development over time. In this way, the
lender
allows the developer to begin recouping
that he invested up-front,
the
equity
instead of making him wait until
the very end of the project.
Summary
financial data for the four development phases
are presented in Table 3.
The salient points,
to the respective loan commitment amounts,
and
lender's breakeven (i.e.
with regard
repayment terms,
the number and percentage
of
unit sales required to repay loan) are presented below:
Phase:
One
Two
$110MM
Three
Four
$112MM
$52MM
Loan Commitment:
$166MM
Repayment Terms:
(% of net sales)
100%
98%
95%
80%
86%
674
83%
393
78%
370
67%
181
Lender's Breakeven:
(% and # of units)
87
Port Imperial
West New York, New Jersey
Table 3
PHASE:
SUMMARY FINANCIAL DATA
ONE
TWO
THREE
FOUR
Total Costs:
Cash Flow Basis
Pro-rata Accounting
$214.6MM
$200.7MM
$109.1MM
$114.5MM
$111.2MM
$116.6MM
$ 50.4MM
$ 53.5MM
Gross Sales
Average Price PSF
$206.2MM
$218
$144.OMM
$252
$160.7MM
$281
$103.4MM
$318
Net Sales Proceeds
(including NOI from
parking and retail)
$193.OMM
$194.0MM
$135.OMM
$135.4MM
$151.0MM
$151.6MM
$ 97.0MM
$ 97.7MM
Loan Commitment
$166.OMM
$110.0MM
$112.OMM
$ 52.0MM
Maximum Parking Loan
(if available)
$ 3.9MM
$ 3.5MM
$ 5.1MM
$ 5.0MM
100%
98%
95%
80%
Lender's Breakeven
(with parking loan)
86%
84%
83%
81%
78%
75%
67%
61%
Gross Margin:
Individual
Cumulative
(3%)
(3%)
18%
5%
30%
11%
83%
19%
Repayment Terms
88
Under
the
arrangement
described
above,
ARCORP
is
projected to invest approximately $48.6 million of equity in
total
into the project,
phase
one.
This
in addition to
amount
represents
the
land,
23%
of
during
the
total
development costs in phase one of $214.6 million, which in a
typical
development
proportion
of
would probably be
equity.
However,
considered
a
high
$48.6 million is not
an
unreasonable amount of equity relative to the projected cost
of the overall development of $485.3 million,
it
amounts to 10% of the total
that
total
in which case
development
costs.
development costs including sewer
(Note
fees,
sales
commissions and developer's fees, items which are assumed to
be paid out of the condominium gross sales proceeds,
to about $523.9 million.
amount
Relative to this figure, ARCORP's
equity investment represents 9% of total costs.)
It
is further assumed in the model that once the
amount for a particular phase is repaid,
the proceeds
loan
from
the remaining unit sales in that phase will flow directly to
the
developer.
reduce
the
subsequent
(i.e.
These
outstanding
phase.)
The
proceeds are not required
balance
of
the
individual loan
loan
amount
subsequent phase will be repaid from the net sales
of
the units built in that phase.
developer
developed,
is
In this way
for
the
in
each
proceeds
also,
able to realize his return as the project
rather
than having to wait until
completion.
89
its
to
the
is
ultimate
Evaluating Feasibility: Developer's Perspective
In
a
condominium development,
a construction
lender
generally expects there to be a gross margin of about 20 per
cent.
Granted
developer's
this
return
is a static
is
measure
of
return.
really a function of the
flows over time from a project.
net
A
cash
Still, the gross margin is
a useful parameter for gauging the impact of the program and
phasing
on
the
development.
financial
feasibility
of
the
Palace
The individual and cumulative gross margins in
each phase are calculated below on an accounting basis.
The
sitework
the
and
initial
sales-office costs which are incurred in
phase,
but
support the
entire
development,
are
allocated to the four phases on a pro-rata-unit
basis.
In
one
measure
of
respect,
return
to
the
apply
condominium
gross
to the
margin is an awkward
Palace.
or
project,
the
costs
to
Because it is unlikely that
financing can be obtained for either the
retail,
parking
the gross margin in this context is actually
comparison
net
this
sales essentially must subsidize the
develop the parking and retail.
permanent
In
of
the aggregate cost of all components to
sales proceeds plus net operating income
from
a
the
parking
and retail in a specific period.
Overall,
is
based
sales
the gross margin of the Palace is 19%.
on projected total costs of $485.3
proceeds of $576 million,
income
million,
from
parking
respectively.
and annual
million,
net
and retail of $2.1 million
It should be noted,
90
This
net
operating
and
$0.8
however, that
because
this
is a phased development,
in which
substantial front-loading of the sitework,
and
marketing costs,
misleading
The
of
the
financial
development's
model
is
parking, retail,
the gross margin at completion
indicator
profitability.
there
is
a
progressive
indicates
that
the
overall gross margin is very sensitive to the return in
the
fourth
phase,
in which the bulk of the profits is expected
to be generated.
(It should also be noted that total costs,
as reported here,
are exclusive of ARCORP's current-dollar
investment in the land.)
Under the model's assumptions,
first
phase
phase
one
revenues
is negative 3%.
of
$200.7
million
the gross margin in the
The total pro-rata costs
actually
exceed
in
combined
from condominium net sales ($193 million) and
net
operating
income from parking and retail (approximately
$1
million).
(Note
if
that
the gross margin is negative
ARCORP's
investment
pro-rata
costs of phase one.) This deficit picture
from
both
one.
The
proposed
in the land is included in
the program and construction schedule
construction
costs
are
expensive,
levels of quality and complexity,
projected initial prices.
Hard costs alone,
4%
the
total
results
in
given
phase
the
relative to the
on a per unit
basis, amount to 78% of the projected average net salesprice
($191,620
hard
versus $245,880).
costs
condominiums.
of
the
parking
Also,
developed in phase one.
a
Note that this
and
retail,
includes
not
just
the
the
surplus amount of parking is to be
As zoned,
91
1.5 spaces per unit are
required,
may
be
but ARCORP plans to develop a ratio of 1.9.
a
wise tactic from
a
marketing
This
perspective,
to
prevent a parking shortage for either residents or visitors.
However,
ARCORP
structured
plans
parking,
to
develop
all
1,448
spaces
which substantially raises
the
as
costs
above that for surface parking.
The construction schedule also has a negative impact on
the return in the first phase.
the
second
ARCORP proposes to complete
crescent containing 364 units just five
months
after completion of the first, followed within two months by
completion of the central arch which has 56 units.
assumed absorption rate of 250 units per year,
that
ARCORP
average,
1990
for
will
be carrying over 300
and
construction
the
this implies
unsold
nearly two years between the 1988
first quarters.
At
units,
on
third
and
The carrying costs for unsold
interest expense in phase one
units
amount
to
$6.6 million and $16.7 million, respectively. Combined, this
is
12% of the total pro rata costs of phase one.
costs
were reduced by half,
If these
the gross margin in the
first
phase would increase to positive 2%.
Even
model,
if the first phase sells out as projected in
the
ARCORP will still have about $20.7 million of equity
in
the project at the end of phase one.
If ARCORP
the
maximum projected equity amount --
$48.6 million
addition to the land,
invests
--
it will recoup $27.9 million, or 57%,
from sales proceeds in phase one after the repayment of
first-phase
loan.
in
To improve the gross margin and
92
the
reduce
its equity exposure in this phase,
ARCORP could attempt one
of the following measures:
It
could
raise its initial condominium sales
prices.
However, then it would run the risk of pricing itself out of
the market and/or lowering the absorption rate and incurring
higher maintenance and interest costs.
It might sell rather
than rent the parking spaces.
At the current market
of
it could raise close
about
$10,000
per space,
million from parking sales in phase one.
price
to
$8
The tradeoff under
this option is that ARCORP would have to relinquish
control
of
to
most,
if
not
all,
of the parking facilities
the
condominium owners' association. Alternatively, ARCORP might
increase
the initial parking rent from the
per month.
projected
$100
It may not have much leeway to do this, however,
if the common area fees and real estate taxes at the project
are
already
absorb
relatively high.
higher
Moreover,
parking
more
on
top
of
these
to
expenses.
as the residents will be charged additionally for
the ferry service,
even
fees
Buyers may be reluctant
on a "pay-as-you-go" basis,
sensitive
to the
collective
they may be
impact
of
these
various fees.
ARCORP could also investigate means to reduce the costs
in phase one.
For instance, it could develop a combination
of
and surface parking in the first
structured
still provide the planned 1,448 spaces.
large,
phase
and
ARCORP's site is so
it could pave a small portion for temporary use as a
visitors'
parking
area
and
93
provide
a
shuttle
bus,
if
necessary, to the crescents.
cost
of
In this way it could defer the
structured parking to later
measure
that
construction
ARCORP
of
the
could
take
second
phases.
would
crescent,
One
strong
to
defer
be
until
a
greater
percentage of units had been presold in phase one.
However,
this would necessitate deferring construction of the central
arch and retail structure, which might negatively impact the
marketing of the units in the first crescent.
The
individual
gross margin in phase two is
improved
18%.
project's
cumulative
accounting
Its
basis,
recoup
that
its
positive
units,
a
5%.
ARCORP will breakeven in
phase
cash flow)
once
healthy
on
an
during
the model
two
(i.e.
realize
a
1,244
have been sold.
In phase three, the individual gross margin
30%,
the
the
approximately
62% of the 2,002 units planned,
Apparently,
Thus,
full equity investment and begin to
(See Exhibit 8.)
is
margin to
much-
raises
On a cash-flow basis as well,
cumulative
or
gross
contribution
the project breaks even sometime
the second phase.
indicates
positive
a
and the
cumulative
margin
is
11%.
impact of the negative margin in phase one
continues to restrain the project's cumulative return.
The individual gross margin in phase four is a whopping
83%.
This
is
obviously
projected
price
projected
to
proceeds
and
a
appreciation.
result
of
the
Total pro-rata
be $53.5 million as compared with
program
and
costs
are
net
of $97 million and additional income from
retail
of
$0.7 million.
94
No costs
are
sales
parking
incurred
for
parking or landscaping,
the
previous
as both will have been completed in
three phases.
Also,
phase,
containing just 270 units.
costs
for
unsold
comparatively
units
low,
this is
Thus,
and
the
the
interest
smallest
maintenance
expense
are
both because the units sell-out over
a
shorter period and the aggregate costs are much lower.
The
projected average gross price for the condominiums
in this phase is $318 per square foot.
model's
6%
per
questionable.
the
$300
It
price
escalation
factor
is difficult to imagine prices
per square foot mark at this site,
years hence.
that
annum
At this point,
the
seems
breaking
albeit
eight
It seems even more doubtful when one considers
units built in phase four will be
desirable
the
location,
in
the
along the back and above the
least
parking,
without a view of Manhattan.
Under
the model's assumptions,
phase four boosts
cumulative gross margin of the Palace to 19%.
the
prices
achieved
amount projected,
However,
in phase four equal only 90%
the
the individual gross margin falls to
65%
prices drop 10% in phase four,
overall
project
achievement
dependent
falls
10%.
Thus,
the gross margin of
So
it
appears
that
of the gross margin benchmark of 20% is
upon
if
of
and the development's cumulative margin falls to 17%.
if
the
the return generated in
the
final
the
the
highly
phase.
Yet, the return in this phase is the most speculative, since
it
is
unknown whether prices will indeed
strongly
appreciate
that
or whether the absorption of units on the site can
95
be sustained at that volume.
It
should
be noted again that the cost
amounts
used
above to calculate the gross margin at various intervals are
exclusive
of
Apparently,
unit
ARCORP's
current-dollar
investment.
if a developer was to pay $40,000 per
for the Palace parcel today,
would
land
dwelling
the proposed development
be infeasible under the model's
assumptions.
(With
the additional land cost of about $80 million, the project's
overall gross margin would be 2%.)
The before-tax net present value of ARCORP's investment
in the Palace is a function of several key
book
value
respect
(including ARCORP's expenditures to
to
allocated
variables:
the
aggregate
367
to the Palace parcel;
acres);
land
date
the
with
proportion
the amount and
timing
of
cash equity infusions into the Palace; the amount and timing
of
cash flow received from condominium sales,
parking
and
retail;
the
flows.
The first two of these variables are the subject of
Table 4.
before-tax discount rate applied to these cash
There, the historical costs (incurred between 1981
and 1985) of ARCORP's land acquisition and expenditures with
respect to the 367-acre site are inflated to current
dollars.
Palace
Of
parcel
this
on
total,
a portion is allocated
a pro-rata acreage basis.
As
(1986)
to
there
the
is
currently no debt on the property, this approach attempts to
reflect the accrued equity (or opportunity) cost of ARCORP's
investment.
Alternatively,
no value could be assigned to the land
96
Port Imperial
West New York, New Jersey
Table 4
ARCORP'S EXPENDITURES TO DATE
Historical
Costs
LAND:
1981
$ 7,750,000
Current (1986)
Dollars
Portion Allocated
to 40-acre Parcel
$15,588,000
$1,699,000
$
$
SITE IMPROVEMENTS
& CONSULTING FEES:
1981
1982
1983
1984
1985
TOTAL:
$
47,000
2,172,000
4,619,000
4,465,000
6,184,000
$25,237,000
94,500
3,799,000
7,025,000
5,905,000
7,112,000
$39,523,500
10,400
417,900
772,800
649,600
782,300
$4,332,000
Source: J. Dugan, Finance Officer, ARCORP Properties, Inc.
1
The historical costs are inflated at ARCORP's
cost of capital which is assumed to be 15%.
carrying
2
Current-dollar total is allocated on a pro-rata
basis.
acreage
3
The historical
cost
(or book value) of
ARCORP's
investment in the 40-acre parcel is $2,751,000.
97
(and
expenditures to date),
no
cash outlays are required to secure the land
at
additional
if one takes the view that
this point in time.
present
value
involves
Accordingly,
value
determined
initial
a discounted cash
flow
analysis.
some may view ARCORP's historical expenditures
as a sunken cost,
present
The determination of the project's net
not as a cash outflow at the time the net
is determined.
below
cash
from
The net
present
both perspectives
outflow
equals
value
(i.e.
ARCORP's
that
is
the
current-dollar
investment in the parcel and that it equals zero).
In effect, the impact of the third variable (the amount
and
timing of ARCORP's equity infusions) is a
the
underwriting
present
value
Recall
that
expected
into
to
the
of
is
the loan for the
determined below
under
the
project.
under
The
two
up-front,
assumptions,
loan closes.
before
net
ARCORP
of
the
In the first
of
scenarios.
infuse approximately $28.1 million
project
construction
model's
function
is
equity
first-phase
scenario,
it
is
assumed that ARCORP will invest this equity "out-of-pocket".
It
is
assumed
facilities
will
in
the
second
be
arranged to
scenario
finance
that
the
two
loan
project,
a
construction loan secured by the 40-acre Palace parcel and a
land
loan
site.
to
secured by other property
within
the
367-acre
The purpose of the land loan would be to allow ARCORP
raise cash to meet the initial equity requirement in the
Palace development.
The
amount
and
interest rate of the
98
land
loan
are
assumed to be $30 million and 10% per
The
entire
annum,
respectively.
amount (less a one-half per cent fee) would
be
advanced at the loan's closing, which is assumed to occur at
the end of the 1986 third quarter. Interest would be paid by
ARCORP out-of-pocket.
The loan would be due in full at the
end of the 1995 second quarter,
by which time the Palace is
projected
This is
to
referred
sold out.
to as a bullet loan,
amortized
that
have
what
ratio
is
difficult to obtain.
generally limited to 60%,
uncertainty
is
It should be noted
land loans are considered very risky by
are
commonly
since the principal
during the loan term.
consequently,
is
not
again
lenders,
and
The loan-to-value
which stems
from
of a land loan's source of repayment.
A
the
land
loan is typically repaid upon the sale or refinancing of the
property.
cushion
value,
Therefore, a lender wants to maintain an adequate
between
the loan amount and the
land's
appraised
as the latter is inherently speculative on the basis
of future market conditions.
In
ARCORP's
case,
the conditions
property's value are rather unique.
likely
spark
controversy
which
affect
its
These conditions would
between ARCORP and a
lender
in
negotiations regarding the value of the parcel mortgaged
to
secure
the above land loan.
highly
dependent
possesses
the
upon
means
The value of ARCORP's site is
of
access.
ferry permit and controls
Since
the
ARCORP
right-of-way
through the site, the land's value to ARCORP is greater than
what it would be worth to a lender upon foreclosure.
99
In
all
operator
land.
probability,
the ferry permit runs
(party to whom it was issued),
and not
with
the
with
the
The permit is also probably not assignable (e.g. to a
lender
as
additional security).
Moreover,
it is
highly
unlikely that ARCORP would assign either the ferry permit or
the right-of-way to support a mortgage on another portion of
the
367-acre
Nevertheless,
ensure
simply
site,
legal
to
raise
$30
million.
arrangements would have to be made
to
that a lender would have adequate access to any such
mortgaged parcel in the event of foreclosure.
The fourth key variable affecting the net present value
(cash
from
flow
sales
and net
operating
function of the assumptions underlying the
with
to the fifth
respect
variable,
under
current
ARCORP's
economic
rates and inflation.
interest
model.
is
a
Lastly,
before-tax
This may seem somewhat
discount rate is assumed to be 20%.
aggressive
income)
of
conditions
However,
it is
lower
deemed
an
involved
appropriate rate of return given the sizable risks
in the Palace development.
ARCORP invests the requisite equity into the Palace
If
net present value of its investment
is
negative $1.1 million when its current-dollar investment
in
out-of-pocket,
the
land
outflow.
initial
the
($4,332,000)
If
cash
is
treated
as
the
initial
hence
no value is assigned to the land,
flow equals zero,
the resultant net
The
before-tax
cash
the
present
internal
value
is positive $3.3 million.
rates
of return from both perspectives are 19.4% and 21.8%,
100
respectively.
Under
proceeds
equity
the second scenario,
of
the
in which ARCORP
land loan to satisfy the
requirement,
higher.
uses
initial
the net present value is
Palace
value,
postponing the initial equity investment
land loan is due in 1995,
the
considerably
The positive impact on the net present
effectively
the
(See Exhibit 10.)
until
the impact of the
outweighs
interest expense associated with the land
additional
Under this scenario,
of
loan.
if the initial cash outflow is assumed
to equal ARCORP's current-dollar investment in the land, the
net present value equals $10.5 million.
flow
is
assumed to equal zero,
$14.8 million.
the
the
measure
the net present
However,
second assumption and hence,
of
value
The internal rate of return is 37.1%
first of these assumptions.
under
If the initial cash
return.
(This
result
is
it is
not
due
a
under
negative
meaningful
to
inherent
limitations in the process of calculating the internal
of return.)
This
that
is
pro
forma
analysis
of
the
Palace
indicates that ARCORP may not achieve a
commensurate with the level of risk
undertaking.
rate
These returns are summarized in Table 5.
initial
development
is
Certainly,
if
ARCORP
it
would
must invest
equity into the project upfront,
its
a
of
return
(net present value) is small relative to its
on the land investment).
be
large
projected
amount
exposure (if not negative,
return
equity
depending upon one's perspective
ARCORP's projected breakeven
may
be reasonable in percentage terms at 62% of the total units.
Port Imperial
West New York, New Jersey
Table 5
DISCOUNTED RETURNS UNDER
ALTERNATIVE LAND/FINANCING SCENARIOS
Return Measure
NPV
IRR
Notes:
1
2
3
Land At Current Cost
Cash
With
Equity
Land Loan
($1.081MM)
Land At Zero Cost
Cash
With
Land Loan
Equity
$10.472MM
$3.251MM
$14.804MM
37.1%
21.8%
(148.9%)
19.4%
Before-tax return at discount rate of 20%
Current-dollar land cost = $4.332MM
Land loan is $30MM, at 10% interest only, due in 1995
102
But
it
is
rather
high
approximately 1,245 units.
is
vulnerable,
appreciation
as well,
and
in
terms
of
real
volume
The overall gross margin of 19%
to subdued expectations of
absorption in the project's final
It is important to note,
at
price
phase.
however, that ARCORP's perspective
on the Palace is likely to span a longer term than it
would
if ARCORP was contemplating the development of only this 40acre
parcel.
This issue is discussed in more depth in the
next chapter.
103
CHAPTER V
RECOMMENDATIONS
The
financial
suggests
that
analysis
in
the
preceding
chapter
perhaps the costs to develop the Palace
are
too high relative to the prices that can be achieved in
the
competitive
market.
the
environment
of
the
waterfront
residential
Is ARCORP proposing to over-improve the site, given
market constraints on price at that location?
Or will
the supply of high-quality luxury units at the Palace create
the desired demand at corresponding high
prices?
ARCORP's
special circumstances cast another light on this issue.
As
likely
it
the owner of the entire 367-acre parcel,
ARCORP is
to view the return from the Palace differently
would if it was the owner of just the forty-acre
parcel.
This
is
understandable.
ARCORP's
than
Palace
objectives
regarding the Palace development are longer-range than those
of the typical developer of a single parcel.
In this,
the
first stage of its master plan for the mixed-use development
of
the property,
tone
ARCORP is seeking to set a
precedent
for the development of subsequent stages.
or
ARCORP may
therefore accept a lower return in this first stage,
if
it
feels that the quality design and construction of the Palace
will
generate
site.
In
returns
that
(i.e.
a positive externality for the rest
case,
it
will expect to
of
realize
the
higher
rents and sales prices) in future stages
of
the development of Port Imperial as a result.
In
which
this final section,
ARCORP
should
several issues are
address
104
before
identified
undertaking
the
development of the Palace.
discussed
in
previous
In addition to issues which were
sections,
these
will
impact
the
financial feasibilty and marketability of the project.
The
first
the
of these issues concerns the retail component of
Palace.
The development program calls for 46,400
square
feet
of
retail
space
(exclusive
of
rentable
the
ferry
terminal) which paradoxically is too small, yet too large an
amount to be viable.
That is, the retail space is not large
enough to become a destination shopping area, but may be too
much
to
thrive
Further,
will
on the
Palace
residents'
demand
alone.
if the build-out of the Palace is delayed,
ARCORP
have
to
continue
to subsidize
the
retail
tenants
indefinitely.
In
addition
residents
of the Palace,
purpose
the
to providing essential
to fulfill.
services
the retail component has
environment.
unsuccessful,
the
component.
retail
Palace,
retail space to make it a
In
the
a
mixed-use
development
right.
the
a
lively,
businesses
are
perhaps ARCORP should seriously reconsider
primarily
However,
If
the mix of uses at the
expanding
another
it will dampen the atmosphere at the complex.
In view of this,
broadening
the
It really should generate activity at
site and contribute to the establishment of
community
to
"big"
picture,
residential component of
the
in
particular,
more
significant
Palace
ARCORP's
strategy for the entire
may
be
long-range
367
acres.
the Palace is a large-scale development in its own
As
such,
it may be appropriate to regard it as
105
a
microcosm
of
the overall planned development,
in which
a
broader mix is required to create a more vital atmosphere.
Enlarging
effectively
the
a
Palace's retail component
destination
modification of the design.
likely
be
more
economically;
permanent loan.
contradiction
shopping area would
make
require
it
a
The expanded retail space would
self-contained,
hence,
to
as well
as
more
viable
it should be easier to finance with a
However, this may also inject an element of
into
relates to access.
the Palace marketing
strategy,
as
it
A conflict would exist between marketing
a secure and exclusive residential image, based on the ferry
serving as a private taxi for residents only,
and
non-residents
boost
sales.
to
the
Drawing
site via the ferry to
non-residents
to
shop
and
bringing
retail
dine
in
restaurants at the site would also raise an issue concerning
parking.
The site plan would probably have to be revised to
accommodate additional parking and traffic.
Obviously,
at
the
promotion of a viable retail component
the Palace raises some complicated marketing and
issues.
design
ARCORP would be well-advised to solicit the counsel
of an experienced retail developer on these matters.
ARCORP
should
to
also consider leasing the entire retail area
experienced retail developer and/or operator to manage,
an
who
in turn could sublet the space to individual tenants.
In regard to another marketing issue,
there appears to
be a dichotomy of opinion within ARCORP's organization as to
the
relative
importance of the Palace's
106
principal
target
markets.
should
This
On
one side,
focus
is
relocate
primarily on attracting
considered
absorption
it is believed that the
goal,
more
Manhattan
necessary to
achieve
presumably
Manhattan
as
it
rapid
residents
can
quickly from an apartment or condominium
is
On the
felt that the project is too large to
just one market;
are
dwellers.
ARCORP's
the City than their New Jersey counterparts.
side,
marketing
thus,
several New Jersey market
regarded as important to target.
in
other
target
segments
Two such markets are
empty-nesters in Northern New Jersey and present condominium
owners
in
the
area,
whose
units
have
appreciated
considerably and who now are in a strong position to upgrade
their accommodations.
its
marketing
decisions
ARCORP must reach a consensus
strategy,
regarding
unit
in
mix
order to
make
and size
final
and
to
about
design
plan
an
effective marketing campaign.
ARCORP
and
also must address the issue of common area fees
real estate taxes in order to prepare
offering
plan
maintenance
variable
for
costs
with
the
of
Palace.
In
the complex may
the
condominium
particular,
not
be
the number of units developed on
the
absolutely
the
site.
Given the scope of services which ARCORP proposes to provide
for
the
site,
there is likely to be a threshold level
of
fixed costs which is disproportionately high relative to the
784 units to be developed initially.
not
be
able
to
pass on the full
ARCORP probably
costs
development to the first-phase residents.
107
to
service
will
the
Inherent
risk
the
in any large-scale phased development is
the
of downturns in the regional or national economy.
If
economy slows and market conditions warrant
postponing
the build-out of the Palace, ARCORP faces the risk of having
to
subsidize services at the development for an
indefinite
period.
ARCORP should attempt to quantify the cost of this
subsidy
and to incorporate it in the feasibilty analysis of
the project.
Lastly,
inherent
ARCORP
should consider another risk
that
in any large-scale residential development and its
impact on the marketability of the Palace units.
is
the threat of internal competition
Palace
is
is
phases,
when
seeking
project
from
likely
be
resales.
sales
prices
are
a high sales volume.
to
is
benefit
restrained
built-out,
can
reckoned
with,
as
it
the
in
appreciation
seriously
may
the
early
order
Such speculators,
from the units'
The
since
to appeal to speculators in
hamper
marketir g of new units in subsequent phases.
to
That risk
especially vulnerable to this threat
project
generate
is
to
who
are
as
the
ARCORP's
This is a risk
effectively
slow
the
absorpti on rate in later p hases at the Palace.
In
a
Manhattan
condominium
development
(Harry
Macklowe 's Metropolitan To wer), apartment investors - buying
early
in the hopes of making a profit when the
de veloper' s
marketing campaign has generated sufficient interest to push
prices up - have been frozen out of the building by a resale
ban.
Sales agreements incorporate a no-resale clause based
108
on
the
time
and on the percentage of the residential space
building that has been sold. 1
This may be a
which ARCORP will want to investigate.
not
mechanism
However, ARCORP may
have the liberty to cut off speculative demand
Palace.
This
in
at
the
component of demand may assert too great
an
effect on the rate of sales in the early phases; so much so,
that
may
the positive financial impact of sales to
outweigh
the potential negative impact of
speculators
competition
from resales.
It remains to be seen whether or not ARCORP can indeed
create
the setting for such a unique design as the
Certainly,
the
New York metropolitan area is
the
Palace.
optimum
location for such a prodigious undertaking.
Given the sheer
size
and diversity of the New York market,
a submarket
more
likely to exist there for the Palace development
is
than
in any other area of the country.
It
is
involvement
evident
in
the property,
from
Arthur
that he has a deep,
to
for
in
Under his direction, high
this
stretch of vacant land into a European-style
ARCORP has already accomplished a great deal
facilitating
efforts
personal involvement
have been set for the the transformation of
long-neglected
city.
close
all decisions affecting ARCORP's plans
the outcome of this development.
standards
Imperatore's
the
site's
metamorphose.
obtain access to Manhattan via
toward
Its
successful
the
ferry
and
zoning for high-density urban development have created value
for the property and deserve praise.
109
ARCORP's
"city"
will
only
thrive,
however,
inhabitable setting is established at the site.
which
this
the
setting is limited by two factors.
One of
commit capital and time.
ARCORP's
create
these
of
The other relates to ARCORP's
capacity to undertake multiple developments,
to
an
The rate at
rest of the property can be developed to
course is market conditions.
and
if
to assume risk
Perhaps it would
be
to
advantage to sell or ground-lease parcels to other
developers,
in order to spur the transformation of the site
as a whole.
The presence of ARCORP's and other developers'
projects at the site should be mutually beneficial.
Rather
than competing against one another, they should collectively
enhance the marketability of this location.
developments
ferry
Moreover, other
at the site would no doubt rely upon
service.
The increased volume of
ferry
ARCORP's
passengers
should in turn increase the profitability of that operation.
Overall,
property
is
the
development
an exciting prospect.
of
ARCORP's
waterfront
Through the
bold
and
creative efforts of ARCORP and other developers, the dormant
eighteen-mile
west
bank of the Hudson has
the
become a beautiful and pleasurable waterfront,
Jersey's residents can be proud.
110
chance
to
of which New
ENDNOTES
Chapter II
1. Regional Plan Association, New Jersey Committee
River City, December 1985, p.6.
2.
"Trenton Has Big Plans for Hudson Waterfront,"
Hoboken Reporter, February 5,1986, p.9.
3.
Regional Plan Association,
4.
Ibid., p.8.
p.
cit.,
The
p.11.
5. New Jersey Transit Corporation, Hudson River Waterfront
Study, Draft Transportation Plan, November 1985, p. 20.
6. Interview with Joseph Dugan, Financial Officer, ARCORP
Properties, Inc., June 11,1986.
7.
Robert W.
Burchell, Ph.D. and David Listokin, Ph.D.,
Economic Impact of the ARCORP Development on the Town of
West New York, December 2, 1985, p. 18.
8. Abeles Schwartz Associates, Inc.
for McCarter &
English, Planning Report Supporting the Premise That There
is No Rational Basis for Distinguishing Jersey City from
Other Municipalities in Hudson County in Terms of Either
Demographic Characteristics or Economic Problems, October
1984, p.6.
9.
Ibid., p. 9.
10.
Ibid., p. 14.
11.
Ibid.,
p. 19.
12.
Ibid.,
p. 24.
13.
Interview with Fred VanderKloot,
VanderKloot Company, Inc., May 30, 1986.
President,
The
14.
Edward G. Imperatore, letter to West New York Planning
Board, February 6, 1986, p. 4.
15.
Interview with Edward G.
Imperatore, General Manager,
ARCORP Properties, Inc., June 16, 1985.
16.
Ibid.
17.
Ibid.
18.
Burchell, op.
cit.,
p. 3.
111
19.
Interview with Edward G. Imperatore, op. cit.
20.
Regional Plan Association, op. cit., p. 4.
21.
"The New Emperor of the West Bank,"
September 10, 1984, n. pag.
22.
New York Magazine,
Ibid.
Chapter III
1.
Taller
Properties,
p. 6.
de Arquitectura,
presentation
to ARCORP
Inc., Port Imperial, West New York, June 1986,
2.
Interview with Edward G.
Imperatore, General Manager,
ARCORP Properties, Inc., June 16, 1986.
3. Fred VanderKloot, memo to Ronald Rattner, Principal,
Forest
City Dillon,
Inc.,
"Port Imperial
Marketing
Outline," June 7, 1986, p. 2.
4.
Interview with Louis Newman, Director of Construction,
ARCORP Properties, Inc., June 10, 1986.
5.
Forest City Dillon,
Brochure, n.d., n. pag.
6.
Ibid.
7.
Ibid.
8.
Ibid.
9.
Ibid.
10.
Ibid.
11.
Ibid.
Inc.,
The FCD Building
Method
12.
Interview with Louis Newman, Director of Construction,
ARCORP Properties, Inc., June 17, 1986.
13.
Taller de Arquitectura,
p.
14.
Interview with Frank Verni,
Properties, Inc., June 17, 1986.
112
cit., p. 4.
Project
manager,
ARCORP
Chapter IV
1. Jon Duane, Leo Dwyer, Anthony Green, Scott Hammond,
ARCORP Properties, Port Imperial Project: A Field Study in
Real
Estate Development, unpublished thesis
at Harvard
Business School, April 1986, n. pag.
2.
Ibid.
3.
"Head-in-the-clouds homes,"
1986, p. 24.
Financial Times, June 28,
4.
"Yuppies Back Jersey Revival,"
28, 1986, p.25.
5.
Financial Times,
June
Ibid.
6.
Interview with James McKellar, Director of MIT Center
for Real Estate Development, July 19, 1986.
7.
Liberty House Condominium Prospectus, 1986, pp. 37-45.
8. Halcyon, Ltd., "Rules of Thumb," memo to MIT Center for
Real Estate Development, November 1985, p. 3.
Chapter V
1.
"Head-in-the-clouds homes,"
1986, p. 24.
113
Financial Times,
June 28,
APPENDIX
114
Port Imperial
West New York, New Jersey
Exhibit 1A
DEVELOPMENT ASSUMPTIONS
TOTAL PROGRAM:
EFFICIENCY FACTORS:
Condominium
Retail
2,979,000 gsf*
41,000 gsf
Total GSF
3,020,000 gsf
Condominium
Retail
81%
80%
RENTABLE/SALEABLE AREA:
2,413,770 nsf
48,000 rsf
Condominium
Retail
*incl.
19,000 gsf of retail
Parking
870,600 gsf
MARKET PRICES/RENTS:
Condominium
UNITS:
2,002 units
60,000 gsf
2,902 cars
Condominium
Retail
Parking
Retail
Pking Monthly
Pking Transient
SF/UNIT:
ABSORPTION:
Condominium
1,205 nsf/unit
Parking
GROSS SELLOUT:
$200 per nsf
$15 per rsf
$100 per mo
$3.00 per day
250 units/yr
$610 ,742,703
300 gsf/car
3%
COMMISSION RSDNTL:
SITE:
Acres
Upland
Under Water
Upland SF
40 acres
25 acres
15 acres
1,089,000 sf
RETAIL:
Lease Term
10%
ANNUAL OPERATING COSTS:
Condo Common Area
Fees & RE Taxes
ESCALATION FACTORS:
Retail Oper. Exp.
Pking Oper. Exp.
Condo Prices
6%
Parking Rents
5%
Retail Rent
4%
Hard Costs
4%
Soft Costs
0%
Fee
Pking Oper. Exp.
4%
Interest
Condo Common Area
Fees & RE Taxes
2%
DEVELOPER'S FEE:
5 yrs
Vacancy
$12,000 per unit
$0 per gsf
$1.50 per gsf
CONSTRUCTION LOAN:
1%
10%
LAND LOAN:
Amount
Fee
Interest
2%
115
$30,000,000
0.50%
10%
Port Imperial
West New York, New Jersey
PROJECT COST ESTIMATES
Exhibit 1B
NOTES
COSTS
Land & Exp. to Date
$4,332,000
Not financed
HARD COSTS: Estimates provided by ARCORP's construction staff
Condominium
$95 per gsf
Incl. retail in rsdtl bldgs
Retail
$70 per gsf
No tenant allowance
Parking
Landscaping
Grading/Landfill
Utilities
Sewers
$12,000 per space
$40 per gsf
$10,000,000
$9.20 per sf of upland area
$1,000,000
Allowance: $2.5MM per crescent
$5,000 per unit
All are installed in ph 1
$4,000 per unit
Pd on a per-unit-occpd basis
Bulkhead
$1,300,000
Allowance
Piles
$1,460,000
All are driven in ph. 1
$365,000 per crescent
Road thru Site
$1,565,000
2.5 miles; 90 ft wide
off-site Road
$1,000,000
River Rd intersection &
deceleration Lane
$2,000,000
$4,500,000
Allowance
Sales Offices:
NY pier
NJ on-site
Allowance
SOFT COSTS:
Architect
Engineering Consultant
Legal/Accounting
As per Joseph Dugan of ARCORP
$7,500,000
$3,900,000
$2,600,000
11
11
11
II
S
If
11
11
II
I
Marketing
$39,195,000
Includes permits/closing costs
6.5% of gross sellout
3% commissions; 3.5% adv.
Const Pd Insurance
Based on 1% of hard costs
Based on 1/2% of hard costs
Paid at begin. of each phase
Paid at end of construction
Const Pd RE Taxes
of each phase
AnnI Common Area Fees &
RE Taxes on unsold units
$13,200 per unit
116
Assumes 50% tax abatement
Port Imperial
West New York, New Jersey
Exhibit 1C
DETAIL OF ASSUMPTIONS
1. Condominium Prices and Absorption:
Prices begin at $200 per nsf in 1987 and escalate 6% p.a.
Average price of 2,002 units:
$253 per nsf
$304,865 per unit
2. Retail Lease:
As per ARCORP's marketing consultant,
all retail leases
will be triple net. As such, all operating expenses, real
estate taxes and common area charges are passed on to the
tenant.
ARCORP will own the retail space and lease all
but the 2,000 gsf ferry terminal which it will operate.
3. Carrying Costs of Unsold Units:
Annual condominium common area fee:
$4.50 per nsf
average unit = 1,205 nsf
average fee per unit = $5,423
Annual real estate taxes:
$5.45 per nsf
1987 initial price = $200 per nsf or $241,000 per unit
Assessed at 48.5% = $116,885
Tax Rate:
$112.22 per $1,000 assessed value
Average annual tax per unit = $13,117
With 50% tax abatement = $ 6,558
Avg. annual common area fees and r.e. taxes:
Say:
$11,981
$12,000
4. Hard Costs:
Condominium hard costs include 5% general conditions and
5% contingency. Retail hard cost estimate
includes no
tenant allowance.
5. Construction Manager's Fee:
It is
assumed that ARCORP's construction staff
manage construction; thus, no fee is budgeted.
will
6. Developer's Fee:
2% of condominium gross sales
This fee is deferred and paid on a per-unit-sold basis.
7. Marketing:
6.5% of gross sellout:
$39,300,000
3.0% commissions: $18,300,000
3.5% mkt/adv:
$21,000,000
8. Architect's Fee:
As per Joseph Dugan of ARCORP,
$1.5 million of Bofill's
$7.5 million
fee will be paid in 1986,
and another
$5
million will be paid to him by groundbreaking in 1987.
117
8. Architect's Fee (cont.):
The remaining $1 million will be paid over the next three
development phases.
9. Engineering Fees:
Also as per Joseph Dugan, $3.9 million is budgeted. Of
this
amount, $3,000,000
is
estimated to be spent by
groundbreaking, and the remaining $900,000 is to be spent
over the life of the project.
10. Legal/Accounting Fees:
Again, as per Joseph Dugan,
$2.6 million is budgeted, of
which $1.4 million is to be spent by groundbreaking.
The
remaining
$1.2 million is to be spent over the life of
the project.
11. Sewer Hook-Up Fees:
Estimated at $4,000 per unit to be paid on
occupied basis.
12.
Parking:
Monthly:
Transient:
a
per-unit-
1 space per unit sold
1 visitor per week (or 13 per qtr) per unit
sold.
118
Port Imperial
West New York, New Jersey
Exhibit 2
ANNUAL INCOME & EXPENSE PROJECTION
3----------------------------------------------------------------------------------------------
YEAR:
1987
1988
1989
1990
1991
1992
1993
1991
1995
$268
$1?.55
$122
$3.65
$281
$18.25
$301
$18.98
$3.83
$4.02
$319
$19.74
S11
$.22
PRICES/RENTS
Condoriniu
H
Ha
43
$200
Retail
Pking Monthly
$225
$238
$252
$15.60
$105
$3.15
$16.22
$16.8 ?
$12,000
$1.50
$12,210
$1.56
$12,185
$1.62
$12,?31
$1.69
$12,989
$13,219
$1.82
$13,511
$1.90
$13,?81
$1.?5
$98.80
$72.80
$12,180
$102.?5
$106.86
$111.11
$115.58
$120.21
$125.01
$130.01
$12,979
$13,198
$11,038
$11,600
$15,181
$15,?91
$16,123
$212
$15.00
$100
$3.00
Pki ng Transient
$110
$3.31
OPERATING EXPENSES
Corron area fees
and r.e. taxes
an unsold units
Parking
HRRD COSTS
Condoriniu m
Retai 1
Parki ng
$95.00
5?0.00
$12,000
$1.16
53.47?
$128
5131
$1.9?
Port Imperial
West New York, New Jersey
Exhibit 3
OTR:
ABSORPTION PROJECTION
86/3
Units Available
Phase 1
86/4
0
87/1
0
87/2
0
87/3
0
0
Phase 2
Phase 3
Phase I
H--0
87/1
88/1
0
88/2
364
88/1
88/3
154
455
148
Units Sold per Otr.
0
0
0
21
63
63
63
63
63
63
Cum. Units Sold:
Phase 1
0
0
0
21
84
I?
210
273
336
399
Phase 2
Phase 3
Phase I
------------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -n-- - - - - - - - - - - - - - Total Cum. Units Sold
0
0
0
21
81
147
210
273
336
399
Exhibit i
OTR:
CARRVING COSTS OF UNSOLD UNITS
86/3
86/4
87/1
87/2
87/3
87/4
88/1
88/2
88/3
88/1
Avg. Units Unsold
Carry Cost per Unit
0
0
0
0
0
0
0
0
0
0
0
0
164
1,000
122
3,000
423
3,000
416
3,000
Total Carry Cost
0
0
0
0
0
0
164,000
366,000
1,269,000
1,248,000
Port Imperial
West New York,
New Jersey
------------------------------------------------------------------------------------------Exhibit 3
ABSORPTION PROJECTION
-------------------------------------------------------------------------------------------------------------------------------------QTR:
89/1
89/2
89/3
89/1
90/1
90/2
90/3
90/1
91/1
91/2
Units Available
Phase 1
385
322
259
196
133
70
?
Phase 2
0
V74
Phase 3
Phase I
-------------------------------------------------------------------------------------------------------------------------------------Units Sold per Qtr.
63
63
63
63
63
63
63
63
63
Cum. Units Sold:
Phase 1
462
525
588
651
714
???
781
Phase 2
56
119
182
Phase 3
292
63
215
Phase I
H
Total Cun. Units Sold
.462
525
588
651
711
??810
903
966
-----------------------------------------------------------------------------------------------------------------------------------------------
1029
H
Exhibit I
CARRYING COSTS OF UNSOLD UNITS
-------------------------------------------------------------------------------------------------------------------------------------QTR:
89/1
89/2
89/3
89/4
90/1
90/2
90/3
90/4
91/1
91/2
Avg. Units Unsold
353
290
227
161
101
38
0
0
302
260
Carry Cost per Unit
3,060
3,060
3,060
3,060
3,121
3,121
3,121
3,121
1,061
3,181
--------------------------------------------------------------------------------------------------------------------------------------------Total Carry Cost
1,080,180
887,400
691,620
50 1,810
315,211
118,606
0
0
320,962
827,712
Port Inperial
West New York, New Jersey
Exhibit 3
OTR:
ABSORPTION PROJECTION
91/3
Unit- Available
Phase 1
Phase 2
Phase 3
Phase I
229
Units Sold per Qtr.
Cun. Units Sold:
Phase 1
Phase 2
Phase 3
Phase I
H-
Total Cum. Units Sold
91/1
92/1
166
92/2
103
92/3
Rvg. Units Unsold
Carry Cost per Unit
Total Carry Cost
93/1
93/2
93/3
93/4
40
0
0
?1
262
199
136
63
63
63
63
63
63
63
63
63
63
308
371
434
474
23
86
149
212
275
338
101
1281
1341
1407
1470
1533
1596
1659
1092
1155
1218
Exhibit 4
OTR:
92/q
CARRYING COSTS OF UNSOLD UNITS
91/3
91/4
19?
3,184
131
3,181
627,174
426,606
92/2
92/1
71
3,247?
230,558
92/3
92/4
93/1
93/2
93/3
93/4
104
20
2,165
3,21?
0
3,24?
272
1,104
230
3,312
16?
3,312
3,312
13,29?
0
0
300,80?
761,816
553,114
344,473
Port Imperial
West New York, New Jersey
Exhibit 3
QTR:
ABSORPTION PROJECTION
91/1
Units Available
Phase 1
Phase 2
Phase 3
Phase 1
73
Units Sold per Qtr.
Cun. Units Sold:
Phase 1
Phase 2
Phase 3
Phase 4
H
Total Cum. Units Sold
91/2
94/4
94/3
95/2
95/1
TOTAL
10
270
154
91
28
63
63
63
63
63
28
164
474
53
116
179
242
270
1785
1848
1911
1974
2002
1?22
784
4
74
270
tJ
Exhibit I
QTR:
Avg. Units Unsold
Carry Cost per Unit
Total Carry Cost
CARRRYING COSTS OF UNSOLD UNITS
94/1
94/3
91/2
11
94/4
95/1
3,378
0
3,378
164
1,126
122
3,378
59
1,149
138,518
0
185,197
412,175
67,772
95/2
14
3,446
18,245
TOTAL
Port Imperial
Hest New York,
Exhibit 5
oTR:
H
t~J
New Jersey
CONDOMINIUM MET SALES PROJECTION
86/3
8?/1
86/4
8?/2
88/1
8?/I
87/3
88/3
88/2
88/1
Cum. Units Closed
Units Closed per Otr
0
0
0
0
0
0
0
0
0
0
0
0
210
210
273
63
336
63
399
63
Gross Condo Sales
Less: Sewer Fees
Cormissions
Development Fee
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
51,520,980
810,000
1,515,629
1,030,420
16,093,980
252,000
182,819
321,880
16,093,980
252,000
482,819
321,880
16,093,980
252,000
Net Sales Proceeds
0
0
0
0
0
0
18,101,931
15,03?,281
15,03?,281
15,037,281
182,819
321,880
Port Iuperial
West New York, New Jersey
--------------------------------------------------------------------------------------------Exhibit 5
CONDOMINIUM NET SALES PROJECTION
-------------------------------------------------------------------------------------------------------------------------------------OTR:
89/1
89/2
89/3
89/4
90/1
90/2
90/3
90/4
91/1
Cum. Units Closed
Units Closed per Otr
162
63
Gross Condo Sales
1?,059,619
Less: Sewer Fees
252,000
Comnissions
511,789
Development Fee
341,192
N
S
P
e
55
Net Sales Proceeds
15,951,638
UL
525
63
588
63
651
63
71
63
???
63
91/2
781
7
781
0
966
182
1,029
63
17,059,619 17,059,619 17,059,619 18,083,196 18,083,196
2,009,241
252,000
252,000
252,000
252,000
252,000
28,000
511,789
511,789
511,789
542,496
512,196
60,277
311,192
311,192
341,192
361,661
361,661
10,185
19,------------------------------------------------------------------------------------15,9531,638 15,951,638 15,951,638 16,927,036 16,927,036
1,880,782
0
0
53,325,336
728,000
19,168,188
252,000
1,599,760
1,066,50?
575,046
383,364
19,931,069
17,957,778
0
0
0
Port Inperial
West New York, New Jersey
Exhibit 5
CON00MINIUM NET SALES PROJECTION
oTR:
91/3
Cun. Units Closed
Units Closed per Qtr
Gross Condo Sales
Less: Sewer Fees
Conissions
Developnent
Net Sales Proceeds
H
bi
91/4
92/1
92/2
92/3
92/1
93/1
93/2
93/3
93/4
1,092
63
1,155
63
1,218
63
1,258
40
1,258
0
1,258
0
1,1?0
212
1,533
63
1,596
63
1,659
63
19,168,188
252,000
5?5,016
Fee
383,361
19,168,188
252,000
5?5,016
383,361
20,318,2?9
252,000
609,518
106,366
12,900,195
160,000
38?,015
258,010
0
0
0
0
0
0
0
0
69,591,?18
818,000
2,08?,?52
1,391,831
21,53?,376
252,000
616,121
430,?18
21,53?,3?6
252,000
616,121
130,?18
21,53?,3?6
252,000
646,121
130,?48
1?,95?,??8
1?,95?,?78
19,050,365
12,095,1?0
0
0
65,261,132
20,208,50?
20,208,50?
20,208,50?
Port Imperial
West New York, New Jersey
Exhibit 5
CONDOMINIUM NET SALES PROJECTION
---------------------------------------------------------------------------------
arR:
Cum. Units Closed
91/2
1,722
94/3
91/1
95/1
-------------------------------------------
95/2
TOTAL
63
1,732
10
1,848
116
1,911
63
1,971
63
2,002
28
Gross Condo Sales
22,829,618
Less: Sewer Fees
252,000
Comissions
684,889
Development Fee
456,592
3,623,749
10,000
108,712
72,175
42,035,188
161,000
1,261,065
810,710
22,829,618
252,000
681,889
156,592
21,199,395
252,000
725,982
483,988
10,755,287
112,000
322,659
215,106
610,712,703
8,008,000
18,322,281
12,214,854
Net Sales Proceeds
3,102,561
39,169,713
21,136,137
22,737,126
10,105,522
572,197,568
Units Closed per Qtr
H
91/1
21,436,137
Supporting Calculations for Development Budget
Exhibit 6
QTR:
86/3
SITE IMPROVEMENTS:
Grading/Landfill
Bulkhead
Utilities
Piles
On-site Road
Off-site Road
86/4
500,000
260,000
2,002,000
2,762,000
Total Sitework
CONDOMINIUM:
87/1
500,000
520,000
37/2
4,004,000
520,000
4,001,000
1,160,000
313,000
200,000
1,252,000
800,000
6,997,000
6,576,000
87/3
87/1
88/1
88/2
88/3
N-Mid Crescent
5,820,650 23,282,600
12,170,450
12,106,952
2,116,600
11,611,300
03
S-Mid Crescent
Central Arch
19,811,376
1,119,101
12,657,268
1,986,136
8,251,710
3,052,920
33,037,732
17,643,701
11,30?,660
298,180
596,960
1,193,920
5,820,650 25,399,200
RETAIL
PARKING
N-Mid Crescent
801,600
1,603,200
S-Mid Crescent
801,600
Total Parking
1,603,200
23,811,750
200,000
150,000
100,000
900,000
800,000
1,800,000
600,000
1,350,000
Total Sales Offices
650,000
1,300,000
2,600,000
1,950,000
TOTAL HARD COSTS
650,000
4,062,000
9,597,000
15,118,250
1,017,610
1,017,610 118,038,336
895,110
2,981,800
3,206,400
2,500,992
936,000
1,916,880
3,893,760
2,920,320
1,112,100
1,11?,8?2
3,893,760
2,920,320
17,809,152
2,500,000
5,000,000
2,500,000
LANDSCAPING
SALES OFFICES:
NY Pier
NJ On-site
Total
16,335,000
0-,
Total Condoriniun
88/1
6,500,000
27,002,400
27,954,150
10,281,081
22,131,121
17,921,900
1,913,080 166,667,288
Port Imperial
West New York, Now Jersey
Exhibit ?
DEVELOPMENT BUDGET PROJECTION
PHASE I
OTR:
LAND & EXP. TO DATE
HARD COSTS;
Sitework
Condominium
86/3
86/4
87/1
87/2
87/3
87/1
88/1
88/2
88/3
6,576,000
5,820,650
25,399,200
23,811,750
33,037,732
17,643,701
11,307,660
1,017,610
298,180
596,960
1,193,920
895,110
88/4
1,332,000
2,762,000
6,997,000
Retail
801,600
1,603,200
1,112,400
4,117,872
2,500,000
3,893,760
2,920,320
2,500,000
15,148,250
27,002,100
27,951,150
10,284,081
22,134,424
17,921,900
1,913,080
675,000
675,000
675,000
675,000
675,000
675,000
833,336
675,000
0
0
0
161,000
366,000
1,269,000
1,248,000
0
137,081
1,139,943
1,884,171
2,358,010
2,207,099
2,382,992
Parking
Landscaping
Sales Offices
650,000
1,300,000
2,600,000
1,950,000
Total Hard Costs
650,000
4,062,000
9,597,000
1,500,000
1,000,000
2,250,000
1,000,000
460,000
160,000
2,250,000
1,000,000
180,000
SOFT COSTS
Ha
'0
Architect
Engineering
Legal/Rccting
Insurance
R.E. Taxes
Marketing
Common area fees
and r.e. taxes
on unsold units
Const. Loan Fee
Const. Interest
1,666,673
400,000
675,000
675,000
0
0
0
1,660,000
Total Soft Costs
3,360,000
4,385,000
6,071,673
2,335,000
1,112,081
1,814,943
2,723,1?1
3,399,010
4,151,099
5,139,329
TOTAL COSTS excluding
land Aexp. to date
1,010,000
8,41?,000
15,668,673
17,183,250
28,114,481
29,769,093
43,007,255
25,533,164
22,072,999
7,052,409
Port Imperial
West New York, Now Jersey
Exhibit ?
DEVELOPMENT BUOGET PROJECTION
PHASE 2
QTR:
89/1
89/2
89/1
89/3
90/1
90/2
90/3
90/1
91/1
8,398,825
33,595,301
17,561,180
17,169,556
1,087,968
2,175,937
,351,871
3,391,162
2,500,000
0
9,186,794
35,??1,238
21,913,051
23,361,018
125,000
150,000
200,000
125,000
150,000
200,000
905,351
125,000
125,000
LAND & EXP. TO DATE
HARD COSTS:
Sitework
Condominiu
Retail
Parking
.Landscaping
91/2
Sales Offices
H
LA
0
Total Hard Costs
SOFT COSTS
Architect
Engineering
Legal/Rccting
Insurance
R.E. Taxes
Narketing
Comon area fees
and r.o. taxes
on unsold units
Const. Loan Fee
Const. Interest
0
0
0
0
0
452,676
6?5,000
675,000
675,000
600,000
600,000
600,000
600,000
600,000
600,000
600,000
1,080,180
88?,100
691,620
501,810
118,606
0
0
320,962
827,712
2,007,547
1,620,118
1,221,282
822,116
315,211
1,100,000
123,550
151,133
319,855
1,210,257
1,837,215
1,889,931
Total Soft Costs
3,762,727
3,182,518
2,590,902
1,921,256
2,913,791
2,250,390
1,011,855
1,965,257
3,210,853
3,317,673
--------------------------------------------------------------------------------------------------------------=
TOTAL COSTS excluding 3.762,727
3,182,548
2,590,902
1,921,256
2,913,791 11,737,181 36,816,092 23,878,311 26,571,871
3,317,673
land & exp. to date
Port Imperial
West New York, New Jersey
DEVELOPMENT BUDGET PROJECTION
Exhibit ?
PHASE I
PHASE 3
QTR:
92/3
92/1
93/1
9,081,169
36,336,677
18,991,172
18,895,072
916,069
1,892,139
3,784,277
2,951,736
92/2
92/1
91/1
91/3
LAND & EXP. TO DATE
HARD COSTS:
Si tework
Condoninium
Retail
Parking
H
Total Hard Costs
SOIFT COSTS
Architect
Engineering
Legal/Accting
Insurance
R.E. Taxes
Marketing
Connon area fees
and r.e. taxes
on unsold units
Const. Loan Fee
1,103,120
2,500,000
Landscaping
Sales Offices
Lj
Hj
93/1
93/3
93/2
0
0
0
10,030,239
125,000
125,000
150,000
200,000
150,000
200,000
953,813
38,228,816
125,000
22,7?8,149
24,316,808
0
125,000
0
4,103,120
125,000
125,000
150,000
200,000
150,000
200,000
114,534
1?6,922
600,000
600,000
600,000
600,000
600,000
500,000
500,000
500,000
500,000
500,000
627,171
426,606
230,558
1,120,000
43,29?
0
0
300,807
761,816
553,111
520,000
311,73
1,111,231
760,479
365,190
112,179
335,216
1,317,173
1,935,196
1,819,185
912,280
506,339
Total Soft Costs
2,368,108
1,787,085
2,790,749
2,181,619
1,060,246
1,912,173
3,213,221
3,111,301
2,960,125
2,210,346
TOTAL COSTS excluding
land & exp. to date
2,368,408
1,787,085
2,790,719
12,211,858
39,289,062
21,720,922
27,560,033
3,111,301
2,960,425
6,613,466
Const. Interest
Port Imperial
West New York, New Jersey
Exhibit ?
DEVELOPMENT BUDGET PROJECTION
-----------------------------------------------------------------------------------------------------------------------PHASE I
-------------------------------------------------------------------------
QTR:
94/1
91/2
91/3
91/4
95/1
95/2
TOTAL
LAND &:EXP. TO DATE
HARD COSTS:
Sitework
Condorinium
Retail
Parking
Landscaping
Sales Offices
LA)
t%)
Total Hard Costs
SOFT COSTS
Architect
Engineering
Legal/Accting
Insurance
R.E. Taxes
Marketing
Coron area fees
and r.e. taxes
on unsold units
Const. Loan Fee
Const. Interest
1,332,000
16,335,000
319,826,666
2,981,800
38,393,611
10,000,000
6,500,000
18,316,981
9,571,?85
9,158,190
18,316,981
9,571,785
9,158,190
125,000
125,000
500,000
500,000
207,26?
500,000
500,000
138,518
0
185,197
112,175
294,820
611,571
912,608
792,000
225,516
1,805,073
1,701,176
793,319
0
0
0
394,040,080
500,000
300,000
?,500,000
3,900,000
2,600,000
3,940,401
1,970,200
21,000,000
67,772
48,215
0
------------------------------------------------------------
Total Soft Costs
1,058,338
--- ---
---
TOTAL COSTS excluding 19,375,319
land & exp. to date
1,266,571
---
10,811,360
11,933,375
1,100,000
31,015,211
----------
--
---
10,963,563
---
1,701,176
---
793,319
318,215
--
318,215
91,289,187
------
185,329,26?
Port Imperial
West New York, New Jersey
---------------------------------------------------------------------------------------------Exhibit 8
CONDOMINIUM DEVELOPMENT PERIOD CASH FLOW PROJECTION
-------------------------------------------------------------------------------------------------------------------------------------QTR:
86/3
86/4
87/1
87/2
8?/3
87/1
88/1
88/2
88/3
88/1
Net Sales Proceeds
Interest
0
0
0
0
0
0
0
0
0
137,081
0
1,139,943
18,101,931
1,884,171
15,037,281
2,358,010
15,037,281
2,207,099
15,037,281
2,382,992
Total Costs
1,010,000
8,147,000 15,668,673
17,183,250 28,114,481 29,769,093 13,007,255 25,533,164 22,072,999
7,052,409
-----------------------------------------------------------------------------------------------------------------------------------------------
Otrly.
Cash Flow
(1,010,000) (8,147,000)(15,668,6?3)(17,183,250)(28,14,181)C29,769,093)
Loan Commitrent
Cumulative Advances
5,097,676 (10,196,183)
(?,035,718)
7,984,872
166,000,000 148,516,750 120,402,269 90,633,175 4?,625,921 22,092,457
19,457
17,483,250 45,597,731 75,366,825 118,374,079 113,907,513 165,980,513 166,000,000
Loan Advance
Loan Repayment
17,183,250
0
28,114,481
0
29,769,093
0
43,007,255
48,104,931
25,533,164
15,037,291
22,072,999
15,037,281
19,457
15,037,281
Loan Balance
17,183,250
45,597,731
75,366,825
70,269,118
80,765,331
87,801,050
72,783,226
0
0
0
0
0
0
(?,032,951)
Net
itrly
Cash Flow
Cun. Condo Cash Flow
(1,010,000) (8,117,000)(15,668,673)
(1,010,000) (12,457,000) (28,125,673) (28,125,673) (28,125,673) (28, 125,673) (28,125,673) (28, 125,673) (28,125,6?3) (35, 158,624)
NOTE: Total costs exclude land
8:exp.
to date
Port Imperial
West New York, New Jersey
Exhibit 8
CONDOMINIUM DEVELOPMENT PERIOD CASH FLOW PROJECTION
OTR:
89/2
89/1
89/3
89/4
90/1
90/2
90/3
90/4
91/1
91/2
Net Sales Proceeds
15,954,638 15,954,638 15,954,638 15,954,638 16,927,036
16,927,036
1,880,782
0 19,931,069 17,957,??8
Interest
2,007,547
1,620,148
1,221,282
822,416
123,550
151,433
319,855
1,240,25?
1,837,215
1,889,931
Total Costs
3,762,727
3,182,548
2,590,902
1,924,256
2,913,791 11,737,181 36,816,092 23,878,311 26,571,871
3,317,673
----------------------------------------------------------------------------------------------------------------------------------------------Cash Flow
12,191,911
12,772,090 13,363,736 14,030,382 14,013,215
5,189,852 (34,935,310)(23,878,311) 23,356,198
14,640,105
Otrly.
Loan Comnitment
Cumulative Rdvances
Loan Rdvance
Loan Repayrent
Otrly
0
0
15,954,638
15,954,638
0
15,954,638
56,82,588
10,873,950
24,919,312
97,205,816
49,610,276
60,389,724 36,511,413
9,936,513
73,488,587 100,063,457 103,381,130
0
1,575,000
11,219,181 36,816,092 23,878,311 26,571,871
3,317,673
15,954,638
8,964,675
(0)
(0)
0 18,932,417
17,598,623
------------------------------------------------------------------------------------------------------------------------------
Loan Balance
Net
0
0
0
0 110,000,000 108,125,000
166,000,000 166,0100,000 166,000,000 166,000,000
1,575,000
12,794,181
Cash Flow
8,964,675
1,575,000
12,794,184 49,610,276
(3,762,727) (3,182,548) (2,590,902) (1,921,256)
6,623,5?1
16,109,036
1,880,782
Cun. Condo Cash Flow (38,921,351) (12,103,899) (11,694,800) (16,619,056)C39,995,186)(23,586,449)(21,705,667)
NOTE: Total costs exclude land & exp.
to date
73,488,587
51,131,010
36,850,061
0
998,621
359,156
(21,705,667)(20,707,016)(20,347,890)
Port Imperial
West New York, New Jersey
CONDOMINIUM DEVELOPMENT PERIOD CASH FLOW PROJECTION
Exhibit 8
OTR:
Net Sales Proceeds
Interest
Total Costs
Otrly.
Cash Flow
Loan Cornitment
Cumulative Advances
93/1
93/2
93/3
0
65,261,132
20,208,50?
20,208,50?
20,208,50?
1,317,173
24,720,922
1,935,196
27,560,033
1,849,185
3,111,301
912,280
2,960,125
506,339
6,613,166
(119,388)(39,289,062)(21,720,922) 37,701,099
17,097,206
17,218,082
13,565,011
91/3
91/1
92/1
92/2
17,957,778
17,957,778
19,050,365
12,095,470
0
1,111,231
2,368,108
760,479
1,787,085
365,190
2,790,719
112,479
12,211,858
335,216
39,289,062
15,589,370
16,170,691
16,259,616
6,618,870
1,250,162 112,000,000 110,105,000
105,719,538 107,536,623
1,595,000 13,109,858
92/3
92/4
98,590,113
52,698,920
93/1
7,020,125 55,908,821 52,918,399
59,301,080 31,580,158
??,419,843 104,979,875 108,091,176 111,051,601 117,695,067
Loan Advance
Loan RepayMent
2,368,108
17,598,623
1,787,085
17,598,623
1,595,000
5,808,30?
11,811,858 39,289,062
(0)
0
21,720,922
0
27,560,033
62,000,925
3,111,301
19,198,082
2,960,125
19,198,082
6,613,166
11,010,325
Loan Balance
21,619,816
5,808,308
1,595,000
13,109,858
52,698,920
??,119,843
42,978,950
26,892,170
10,651,513
6,287,651
359,156
359,156
12,016,309
11,695,170
0
0
3,263,20?
1,010,125
1,010,125
9,198,182
(?,583,271)
1,112,199
1,112,199
1,112,199
7,375,106
8,385,831
9,396,257
18,594,439
F
Net Qtrly Cash Flow
U1
Cum. Condo Cash Flow (19,988,735)(19,629,579)
NOTE: Total costs exclude land & exp.
to date
Port Imperial
West New York, New Jersey
CONDOMINIUM DEVELOPMENT PERIOD CASH FLOW PROJECTION
Exhibit 8
-----------------------------------------------------------------------------------------------------------------------------
oTR:
Net Sales Proceeds
Interest
Total Costs
Otrly.
Cash Flow
Loan Comritment
Cumulative Advances
L0
ON
95/2
94/1
94/2
94/3
9-/4
95/1
21,136,137
291,820
19,375,319
3,402,561
641,571
10,811,360
39,169,713
912,608
10,963,563
21,136,137
792,000
1,704,176
22,737,426
225,516
?93,319
10,105,522
0
318,245
572,197,568
(?,138,798) 28,506,150
19,731,962
21,914,107
9,757,278
86,868,301
2,060,818
TOTrAL
2,627,19?
5,121,691
3,120,515
16,304,933 26,929,611 16,088,254
137,0?0,387 117,911,716 158,875,309 160,579,185 161,372,801 161,721,018
19,375,319
0
10,811,360
0
10,963,563
31,575,7?1
1,701,176
17,118,910
Loan Balance
25,662,973
36,504,332
15,892,125
417,390
21,136,137
3,102,561
7,893,913
4,287,22?
21,196,717
9,757,278
40,030,575
13,133,136
51,327,079
55,611,307
??,111,023
86,868,301
Dtrly
Cash Flow
Cum. Condo Cash Flow
NOTE: Total costs exclude land & exp. to date
793,319
1,210,709
318,215
318,215
Loan Advance
Loan Repaymrnt
Net
485,329,267
(0)
0
435,257,671
135,257,671
Port IrpQrial
West Now York, New Jersey
---------------------------------------------------------------------------------------------Exhibit 9
PARKING & RETAIL INCOME & EXPENSE PROJECTION
--------------------------------------------------------------------------------------------------------------------------------------OTR:
86/3
86/4
87/1
87/2
8?/3
87/1
88/1
88/2
88/3
88/1
PARKING:
Avg Units Occupied
0
0
0
0
0
0
200
242
305
368
0
0
0
0
0
0
0
0
0
0
0
0
20,000
2,600
72,600
9,438
91,500
11,895
110,400
14,352
Gross Income:
Ouarterly
Transient
-------------------------------------------------------------------------------------------------------------------------------------Total Gross Income
0
0
0
0
0
0
22,600
82,038
103,395
124,752
Oper Exp & RE Taxes
0
0
0
0
0
0
25,050
75,150
162,900
162,900
0
0
0
0
0
(2,450)
(59,505)
(38,148)
-------------------------------------------------------------------------------------------------------------------------------------Net operating Income
0
6,888
------------------------------------------------------------------------
RETAIL:
Net Operating Income
0
0
0
0
0
--------------------------------------------------------------------------NOTE: Triple Net Lease based on net sf
Less 2,000 gsf ferry terminal
Vacancy: 102
5 yr. lease; 2 yrs. free rent
0
0
0
------------------
0
0
Port Imperial
West New York, New Jersey
Exhibit 9
PARKING & RETAIL INCOME & EXPENSE PROJECTION
OTR:
89/1
PARKING:
89/2
89/3
89/4
90/1
90/2
90/3
90/4
91/2
91/1
131
491
557
620
683
746
781
784
956
998
135,765
17,649
155,610
20,229
175,155
22,809
195,300
25,389
225,902
29,367
216,740
32,076
259,308
:33,710
259,308
33,710
331,851
13,111
316,593
15,057
Total Gross Incore
153,111
175,839
198,264
220,689
255,270
278,816
293,018
293,018
371,991
391,650
Oper Exp & RE Taxes
169,416
169,416
169,116
169,416
176,193
176,193
176,193
176,193
285,237
285,23?
Net operating Incore
(16,002)
6,123
28,848
51,273
79,077
102,623
116,825
116,825
89,754
106,113
0
0
0
0
0
0
132,300
132,300
132,300
Avg Units Occupied
Gross Income:
Ouarterly
Transient
03
RETAIL:
Net Operating Incore
0
NOTE: Triple Net Lease based on net sf
Less 2,000 gsf ferry terminal
Vacancy:
102
5 yr. lease; 2 yrs. free rent
Port Inperial
West New York, New Jersey
PARKING & RETAIL INCOME & EXPENSE PROJECTION
Exhibit 9
91/3
aTR:
PARKING:
Rvg Units Occupied
91/4
92/1
92/2
92/3
92/1
93/1
93/2
93/3
93/1
1,061
1,121
1,18?
1,258
1,258
1,258
1,160
1,502
1,565
1,628
Transient
368,472
17,901
390,351
50,716
432,812
56,269
158,732
59,635
158,732
59,635
458,732
59,635
558,839
72,619
575,092
71,762
599,214
??,898
623,336
81,031
Total Gross Income
116,373
111,09?
189,111
518,36?
518,36?
518,36?
631,188
619,854
677,112
704,370
Oper Exp & RE Taxes
285,23?
285,23?
296,64?
296,61?
296,61?
296,61?
397,207
397,20?
397,20?
39?,20?
Net operating Incore
131,136
155,859
192,164
221,720
221,720
221,?20
231,281
252,618
279,905
307,163
RETAIL:
Net Operating Income
132,300
132,300
132-300
132,300
132,300
132,300
132,300
132,300
132,300
160,963
Gross Incore:
Quarterly
P
NOTE: Triple Net Lease based on net st
Less 2,000 gsf ferry terminal
Vacancy: 102
5 yr. lease; 2 yrs. free rent
Port Imperial
West New York, New Jersey
Exhibit 9
OTR:
PARKING & RETAIL INCOME & EXPENSE PROJECTION
91/1
PARKING:
Avg Units Occupied
91/2
94/3
91/1
95/1
95/2
1,691
1,?32
1,838
1,880
1,913
2,002
Transient
6?9,831
88,3?8
696,314
90,521
?38,?18
96,03?
?55,814
98,256
820,199
106,626
815,105
109,861
Total Gross Incore
?68,208
?86,831
831,?85
851,0?0
926,825
951,968
Oper Exp & RE Taxes
113,095
113,095
113,095
113,095
429,619
129,619
Net operating Incore
355,113
3?3,?39
121,690
110,9?5
19?,206
525,319
RETAIL:
Net Operating Income
160,963
160,963
191,?10
191,710
191,?10
191,?10
Gross Incore:
Quarterly
0
NOTE: Triple Net Lease based on net sf
Less 2,000 gsf ferry terninal
Vacancy: 102
5 yr. lease; 2 yrs. free rent
TOTAL
Port Imperial
West New York, New Jersey
--------------------------------------------------------------------------------------------Exhibit 10
BEFORE-TAX DISCOUNTED CASH FLON ANALYSIS
-------------------------------------------------------------------------------------------------------------------------------clrR:
86/3
86/1
87Y1
8?/2
8?/3
8?/14
88/1
88/2
88/3
88/1
Condominium CF
(1,010,000) (8,117,000)(15,668,6?3)
0
0
Parking NOI
0
0
0
0
0
Retail NOI
0
0
0
0
Net Cash Flow:
(1,332,000) (1,010,000) (8,11?,000)(15,668,6?3)
0
0
0 (1,010,000) (8,117,000)(15,668,673)
0
Before-Tax NPV 9 202 and IRR
(1,081,121)
19.42
Initial outflow equal s current-dollar investment in
3,250,879
21.82
Initial outflow equal s zero
0
0
0
0
(2,150)
0
0
0
0
6,888
0
0 (?,032,951)
(59,505)
(38,118)
0
0
(2,150)
6,888
(59,505)
(2,150)
6,888
(59,505) (?,071,099)
(?,071,099)
the land
Curulative Cash Flow C4,010,000)C12,157,000)(28,125,673)C28,125,673)C28,125,673)C28,125,673)C28,128,123)(28,121,235)C28,180,710)C35,251,839)
Land-L--n0-------------------------------------------------------------------------------Land Loan
30,000,000
P
Land Loan D. S.
0
(750,000)
(?50,000)
(?50,000)
(?50,000)
(50,000)
(?50,000)
Net Cash Flow:
(1,332,000) 25,810,000 (9,197,000)(16,118,673)
(750,000)
(?50,000)
(?50,000)
(?52,450)
0 25,810,000 (9,197,000)(16,118,673)
(?50,000)
(P50,000)
(?50,000)
(?52,150)
Before-Tax NPV 8 202 and IRR
10,171,875
37. 12
Initial outflow equals current-dollar investment in the land
11,803,875
-148.92
Initial
outflow equals zero
Curulative Cash Flow
25,810,000
16,613,000
221,32?
(525,6?3)
(1,275,673)
(2,025,673)
(?50,000)
(?50,000)
(?13,112)
(?13,112)
(809,505) (7,821,099)
(809,505) (?,821,099)
(2,778,123) (3,521,235)
(?50,000)
(1,330,740)(12,151,839)
Port Irperial
West New York, New Jersey
Exhibit 10
BEFORE-TRX DISCOUNTED CASH FLOW ANALYSIS
OTR:
89/1
89/2
89/3
89/4
Condominiur CF
(3,762,?27) (3,182,548) (2,590,902) (1,921,256)
Parking NOI
(16,002)
6,123
28,848
51,273
Retail NOI
0
0
0
0
Net Cash Flow:
C4,332,000) (3,778,728) (3,176,121) (2,562,051) (1,872,983)
0 (3,7?8,?28) (3,176,121) (2,562,054) (1,872,983)
Before-Tax NPV 8 202 and IRR
(1,081,121)
3,250,879
90/1
90/2
90/3
90/4
91/1
91/2
6,623,571
79,07
0
16,109,036
102,623
0
1,880,782
116,825
0
0
116,825
132,300
998,621
89,754
132,300
359,156
106,413
132,300
6,702,647
6,702,61?
16,511,659
16,511,659
1,997,607
249,125
249,125
1,220,675
1,220,675
597,868
597,868
1,997,607
Curulati ve Cash Flow C39,030,568)(C2,206,692)(14,768,746)(16,641,728)C39,939,081)C23,127,121)C21,129,814)(21,180,689)(19,960,011)C19,362,
H
-Land Loan
Land Loan 0. S.
Net Cash Flow:
- - - - - - - - - - - - ----
(750,000)
(750,000)
(750,000)
15)
- - - - - - -- - - - - - - - - - -
(750,000)
(750,000)
(?50,000)
(750,000)
(?50,000)
(750,000)
(750,000)
(4,332,000) (4,528,728) (3,926,121) (3,312,054) (2,622,983)
0 (1,528,728) (3,926,124) (3,312,054) (2,622,983)
5,952,61?
5,952,61?
15,761,659
15,761,659
1,247,607
1,217,607
(500,875)
(500,875)
470,675
470,675
(152,132)
(152,132)
Before-Tax NPV 9 202 and IRR
10,171,875
11,803,8?5
Cumulative Cash Flow (16,680,568)(20,606,692)(23,918,746)(26,541,728)(20,589,081)
(4,827,421) (3,579,811) (4,080,689) (3,610,014) (3,762,145)
Port Irperial
West New York,
BEFORE-TRH
Exhibit 10
OTR:
91/3
91/1
Condominium CF
Parking NOI
Retail NOI
Net Cash Flow:
(,332,000)
359,156
131,136
132,300
622,592
0
622,592
Before-Tax NPV 8 202 and IRR
(1,081,121)
3,250,879
UJ
Land Loan
(750,000)
Land Loan 0. S.
Net Cash Flow:
(127,108)
(1,332,000)
0
(127,108)
Before-Tax HPV 8 202 and IRR
10,171,875
11,803,875
CIrUlative Cash Flow
(3,889,551)
93/2
93/3
93/4
11,695,470
221,720
132,300
0
221,720
132,300
0
221,720
132,300
3,263,207
1,010,125
252,618
132,300
1,010,125
279,905
132,300
9,198,182
231,281
132,300
12,371,073
12,371,073
12,019,190
12,019,190
351,020
351,020
354,020
351,020
3,629,788
3,629,788
1,395,373
1,395,373
1,122,631
1,122,631
9,666,308
9,666,308
(5,721,166)
6,328,324
6,682,315
?,036,365
10,666,153
12,061,526
13,481,157
23,150,165
359,156
155,859
132,300
12,016,309
192,161
132,300
617,315
617,315
(?50,000)
(102,685) 11,621,073
(102,685) 11,621,073
(3,992,239)
93/1
92/1
92/2
(?50,000)
DISCOUNTED CASH FLOW ANALYSIS
92/3
92/1
Curulative Cash Flow C18,739,551)(18,092,239)
New Jersey
7,628,834
(750,000)
11,299,190
11,299,190
18,928,321
(750,000)
(?50,000)
(750,000)
(?50,000)
(750,000)
307,163
160,963
(750,000)
(395,980)
(395,980)
2,879,788
645,373
672,631
8,916,308
(395,980)
(395,980)
2,879,788
615,373
672,631
8,916,308
21,016,153
21,661,526
22,331,157
31,250,165
18,532,315
18,136,365
Port Irperial
West New York, New Jersey
Exhibit 10
BEFORE-TAX DISCOUNTED CRSH FLOW HNALYSIS
OTR:
91/1
94/2
91/3
94/4
95/1
21,136,13?
3,402,561
7,893,943
1,287,22?
21,496,717
355,113
160,963
3?3,?39
160,963
121,690
191,710
440,915
191,710
491,206
191,110
(1,332,000) 21,952,211
0 21,952,214
Before-Tax NPV 0 202 and IRR
(1,081,121)
3,250,879
3,931,261
8,501,313
1,919,913
22,185,633
10,11,33?
3,937,261
8,50?,313
1,919,913
22,185,633
10,171,337
19,039,912
57,51,285
62,161,198
81,652,830
95,121,168
Condominium CF
Parking NOI
Retail NOI
Met Cash Flow:
Curulative Cash Flow
p
15,102,618
Land Loan
Land Loan 0. S.
(?50,000)
Net Cash Flow:
(4,332,000) 21,202,211
0
21,202,211
(?50,000)
(?50,000)
(750,000)
(150,000)
95/2
9,157,278
525,319
191,710
(30,000,000)
(?50,000)
3,187,264
7,757,313
4,169,913
21,135,633 (20,275,663)
3,187,261
?,757,343
1,169,913
21,435,633 (20,275,663)
55,639,912
63,391,285
67,567,198
Before-Tax NPV 0 20 and IRR
10, 471, 815
14,803,875
Cumulative Cash Flow
52,452,678
89,002,830
68,727,168